Retail

Shoprite eating Pick n Pay’s lunch – and big investors are taking note

Shoprite has taken market share from Pick n Pay through its Checkers brand and is poised for strong growth in the future, benefitting from several tailwinds. 

Coronation, with around R670 billion in assets under management, expects the trend of Checkers taking market share from Pick n Pay to continue. 

As a result, its premier Top 20 Fund, with over R25 billion in assets, has increased its exposure to Shoprite. Fund managers Neville Chester and Nic Stein expect the company to outperform for an extended period. 

This is due to a combination of short-term tailwinds, such as “two-pot” money and reduced spending on diesel for generators, combined with longer-term tailwinds from superb management and execution. 

Pick n Pay, on the other hand, has been beset by operational challenges and struggled to compete with Shoprite. 

Once the biggest food retailer in the country, Pick n Pay’s struggles began when it implemented its Ekuseni strategy under former CEO Pieter Boone. 

This strategy was aimed at reinventing Pick n Pay’s core supermarket business and enabling it to compete across multiple income segments through the launch of its QualiSave brand. 

However, it turned out to be a disaster that cost the company billions and pushed the company to replace Boone with Pick n Pay stalwart Sean Summers.

The company appeared to hit rock bottom when its financial results for the year through 25 February 2024 revealed that it was technically insolvent.

Summers appointed a new management team to implement the company’s turnaround plan and began unwinding the Ekuseni strategy. 

It has also completed a R4 billion rights offer to strengthen the balance sheet and started closing struggling Pick n Pay stores.

In addition to the rights offer, Pick n Pay plans to list its Boxer business separately on the JSE as a second step of the recapitalisation programme before the end of 2024. 

While its turnaround plan is starting to show promising signs, Pick n Pay is still reversing many of the changes implemented under its Ekuseni strategy and closing poor-performing stores.

In the half-year to 25 August 2024, Pick n Pay said it had closed 24 supermarkets, including ten corporate stores and 14 franchise stores.

Earlier this year, the retailer announced that it would close or convert over 100 Pick n Pay stores. This involves closing 35 underperforming Pick n Pay stores and converting 70 outlets to the Boxer brand.

Pick n Pay CEO Sean Summers

The fight back

Summers has been tasked with leading Pick n Pay’s fightback and has a track record of successfully competing against Shoprite. 

During his tenure as Pick n Pay CEO from 1999 to 2007, the company experienced strong growth and became the industry leader. 

However, after he departed, Pick n Pay lost its edge and handed Shoprite the lead in the retail market. 

Summers previously explained to Daily Investor how he plans to turn things around at the struggling retailer and take the fight to Shoprite. 

He explained that the company’s big problem is that it fell out of love with retail and, as a result, failed to meet customers’ demands. 

To reignite the love for retail, Summers outlined a Back-to-Basics strategy, which will focus on simplicity, quality, affordability, and sustainability. 

“Given the market environment, it is a reasonable and actionable plan. More importantly, the right operational team with the right experience is now in place to execute it,” the company said.

Summers said Pick n Pay is on the right trajectory and is beginning to see green shoots from its turnaround plan. 

The company said the strategy Summers outlined has already been implemented, some in place since February, with encouraging early results.

However, these green shoots have not translated into financial performance as yet, with its latest trading statement revealing the company expects its headline loss per share and diluted headline loss per share to worsen compared to last year. 

The statement also showed that Pick n Pay’s core supermarket business continued to struggle, with sales declining by 0.3% year-on-year. 

Encouragingly, its like-for-like sales in South Africa grew slightly by 1.1%. Pick n Pay sales growth lagged like-for-like sales because it closed 24 net supermarkets during the period.

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