From one store in KwaZulu-Natal to a R25 billion giant

Boxer has grown strongly from one store in Empangeni, KwaZulu-Natal, in 1977 to an established food retailer with over 400 stores. It is set for its JSE debut later this year. 

Originally launched under the name KwaZulu Cash & Carry, the first store just wholesaled essential goods in the surrounding area. 

Its rapid growth soon meant it had to reposition its brand as a discount food retailer in the lower-income market and changed its name to Boxer Cash & Carry. The Cash & Carry disappeared, and the company became known as Boxer. 

Pick n Pay snapped up Boxer in 2002 for R185 million to expand its reach into rural and peri-urban areas, specifically in KwaZulu-Natal and the Eastern Cape, where Pick n Pay was underrepresented. 

The resources made available by Pick n Pay to Boxer enabled it to grow its footprint rapidly, launching Boxer Build in 2004 and Boxer Liquors in 2009. 

Equity analyst at M&G Investments, Damon Buss, calculated that the company has grown its store numbers at an annual compound growth rate of 14% since it first opened in 1977. 

Currently, there are 281 Boxer Superstores, 150 Boxer Liquors, 31 Boxer Build stores and 15 Boxer Punch stores. 

Many questions were asked of Pick n Pay at the time about why it felt the need to buy Boxer when it had its own discount brand, Score. The company effectively had two brands serving the same market segment. 

However, after years of successive losses at Score, Pick n Pay closed the business in 2010 and converted its store to Pick n Pay branded franchises. 

The graph below, courtesy of Buss and M&G, shows Boxer’s exceptional growth in store footprint over the past twenty years. 

Boxer aims to be “Africa’s favourite discount supermarket,” catering to the growing low—to middle-income consumer market, which makes up the largest portion of the South African population.

Kgomotso Mokabane, an equity analyst at Sanlam Private Wealth, explained that the location of Boxer stores proved pivotal to its growth. 

Strategically located next to the taxi ranks in non-urban areas, the stores have penetrated deeply into the mass lower-income market in rural areas. 

Mokabane also explained that the stores are carefully curated with products that resonate with the regional target market and are supported by decentralised promotional activity focusing on local customers. 

A discount supermarket typically offers consumers lower prices than traditional supermarkets by taking a lower gross profit margin and utilising a high percentage of private-label products. 

Efficient operations and lean business models allow them to offer lower prices while maintaining profitability.

Buss explained that with Boxer only offering 3,000 stock keeping units, it is able to keep costs extremely low compared to Pick n Pay’s 18,000 and Shoprite’s 11,000. 

Selling substantial volumes of a limited range puts Boxer in a strong position to negotiate good prices from suppliers, which can then be passed on to customers. 

The core of the offer is basic commodities, such as maise meal, rice and cooking oil. This type of product has a long shelf-life and is stored at ambient temperatures, enabling a relatively simple and low-cost supply chain. 

Only ten commercial buyers manage all procurement. The model’s simplicity allows for this very lean structure. 

This lower operating cost enables Boxer to be profitable while competing on price with much larger rivals like the USave and Shoprite banners of the Shoprite Group.

Mokabane said USave’s strong growth in recent years is proof of Boxer’s long runway ahead as it expands. Its footprint is largely concentrated in KZN and the Eastern Cape, with big opportunities for expansion available in Gauteng and the Western Cape. 

He explained that the company would have to play catchup with USave and Shoprite but was well-poised to take its larger competitors. 

However, Mokabane said this may involve disposing of the company’s 31-store Boxer Build business, which is a poor strategic fit for the group. 

He expects it to be disposed of over the medium term, as it has not scaled and has been starved of capital in the group’s expansion plans, with the focus remaining on the Superstores business. 

Boxer’s highly experienced management team also makes it an attractive investment for Sanlam Private Wealth, Mokabane said. 

CEO Marek Masojada has been in the role for five years and has been with the company for 30 years. He leads an experienced and stable management team, which has an average tenure of 19 years. 

Both the CEO and CFO, David Wayne, come across as traditional retail operators. This is positive for the success of turning stock as a retailer, Makobane said.

Boxer on the JSE

Makobane described Boxer’s listing as being similar to the dynamic in a household with two siblings. 

“In a household with two siblings, the younger sibling often gets cast into the spotlight when the older one’s poor decision-making taints the family name,” he said. 

“Such is the case within the Pick n Pay Group, where the spotlight has shifted to the younger sibling, Boxer, as Pick n Pay deals with the consequences of poor former management decisions.”

As part of a drive to address the issues at Pick n Pay and to raise capital, the group will spin off Boxer to list separately on the JSE at the end of November.

Pick n Pay’s poor operational performance, combined with significant capex spent on the failed Ekuseni strategy, caused debt to build rapidly.

On 11 November 2024, Pick n Pay announced that it aims to raise between R8.0 billion and R8.5 billion through Boxer’s initial public offering.

Boxer will offer up to 202.4 million shares, around 40% of its total issued share capital, at a price of between R42 and R54 per share.

The share price implies a total market capitalisation of between R21.1 billion and R24.7 billion for Boxer.

Both Makobane and Bussa said that Boxer’s listing will benefit the company in the long run and enable it to compete against its larger peers. 

However, Buss questioned whether R10 billion and R12 billion would be enough to fix Pick n Pay’s problems. 

This may result in it using its controlling stake in Boxer to implement a generous dividend policy to send cash back to Pick n Pay to invest in its own business. 

This would either restrict Boxer’s ability to roll out more stores or force them to take on debt. Neither is as beneficial as allowing Boxer to use its cash to fund its own growth.