MD: Genesis Corporate Solutions
With liquidations in South Africa increasing, there are fears that the South African business environment is becoming increasingly attritional. This environment was also reflected in the recently published Deloitte Restructuring Survey, which suggests that there may be a significant shift from business rescue to restructuring in the near future.
When the current disruptive business environment began entrenching itself four years ago, the retail industry was most impacted by changing market dynamics.
The South African retail space, though lagging behind global trends in 2020, has shown a remarkable capacity for growth and innovation. The advent of COVID-19 brought about significant changes, with companies that dared to take bold risks reaping massive rewards. This dynamic shift saw Checkers and Shoprite seize substantial market share from the long-standing retail giant Pick n Pay. With Sean Summers back at the helm, Pick n Pay has issued a strong warning to competitors, signalling its intent to reclaim its position.
Change of plans
The article points out that Summers’ plans to dismantle the changes implemented by Pieter Boone during his tenure of less than two-and-a-half years, including his unsuccessful Ekuseni strategy.
This strategy, which effectively split Pick n Pay into two brands, one aimed at affluent shoppers and the other (renamed QualiSave) at the middle to the lower end of the market – largely fell flat.
Summers explained that the problem with the QualiSave concept was the limited assortment of products on its shelves. What this did, in essence was cut the group’s margins, he said, pointing out that it didn’t take much to “work out” that this was a flawed strategy.
“It’s not that when everybody makes money in Soweto, they suddenly move to Sandton. The bulk of people stay where their roots are, and they want their Pick n Pay (with a full range of goods)… where they live.”
The article adds that the plan now was to turn these QualiSave stores back into Pick n Pay stores and also increase the ranges available in them. He estimates that it will take around R50 million to change the QualiSave signage back.
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‘Fatally flawed thinking’
The article points out that the other misstep under Boone was the “customer value proposition” initiative, where Pick n Pay tilted its core namesake brand more to the top end of the market.
“These stores were also all redone and there was also some fatally flawed thinking there too. Again, they cut ranges, they took away all the general merchandise out of those stores – so there was 10 to 15% of store revenue at a very healthy margin that was taken out of the stores. Then, they re-laid the stores by putting the popular categories at the back of the store in the belief that they would now drag and drive customers to the back of the store to get to what they wanted. But if you make a shopping trip inconvenient, people just don’t come back.”
He said Pick n Pay was busy reconfiguring those affected stores and also restoring ranges to them.
The article adds that one good aspect of the Ekuseni strategy though was that the capex was “not thrown away” as all the stores impacted by that plan had now also been effectively “cleaned up, with new bulkheads, lighting and flooring” put in.
“It’s now a case of rejigging the branding and ranging in those stores.”
Fresh food
The article points out that Pick n Pay also planned to focus strongly on its bakeries, butcheries, and fresh food offerings in all its supermarkets, with Summers saying these would be three fundamental tenets of the retailer’s merchandising going forward.
Summers said historically, Pick n Pay had always been “very strong in fresh fruit and vegetables” and that it previously had bakeries that were “leading edge”.
“We’re reinstating that again, and we also have a big programme to get our butcheries completely revitalised and up to speed. Fresh is really going to be at the heart of what we stand for as a company. Pick n Pay used to be known as the fresh food people, and we lost it. That is really going to be the front door of the store.”
The article points out that Pick n Pay would also be reinstating brands again, with Summers saying that its brands had always been a traditional strength for the group.
“We are going to have curated house brand ranges [going forward]. Our house brands at this moment are all being reviewed.”
Another important part of the strategic plan had been a review of the group’s store estate on a store-by-store basis.
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Pick n Pay flagged last week in an update that it had reviewed its store base and had taken an R2.8 billion write-down, consisting of two components.
The first was R1.8 billion for assets of selected loss-making company-owned stores, which will be closed or converted to franchises or Boxer stores. It noted this should boost the quality of its portfolio and profitability. The second part included the R1-billion impairment of the assets of underperforming company-owned stores that would remain open.
The article adds that Summers, who was brought in by chairperson Gareth Ackerman in October last year to replace Boone as CEO, said if he felt he could not turn around Pick n Pay, he would already have stepped down in January.
He explained: “If I didn’t think that I could turn the ship, I would have been out of here already in January, I would have taken a good look at this thing and said, I don’t have to do this.”
He said the retailer, which is also undertaking a significant recapitalisation this year through a rights issue of up to R4 billion and a separate listing of its successful discount retail chain Boxer, has the potential for success again – even if it will not be easy.
At the same time, Summers also expects every move by Pick n Pay to be scrutinised as it implements its new strategic plan. But he said he did not pay too much mind to commentators about his prospects for success, likening it to armchair critics watching a sporting event like a rugby test match.
Summers said there were always about “60 000 geniuses” in the stands and “30 idiots on the field”.
Change is always good
Change is always good, and consumers are open to companies challenging themselves to improve.
Even if Pick n Pay cannot catch up to the ground it has lost to Checkers over the last four years, the fact that Pick n Pay is willing to challenge itself can only benefit the company.
Let’s see what transpires.
