It still looks like a slog, but new Pick n Pay CEO, Richard Brasher, is managing to tweak operational efficiencies to take the Cape Town headquartered supermarket giant a few steps closer to achieving a full turnaround.
Pick n Pay reported a trading profit of R1bn in the year to end February, and showed a promising 17,6% hike in profit before tax to R833m. The standout feature in the latest Pick n Pay results is that Brasher is seemingly able to enforce the necessary cost cutting disciplines without sacrificing the company’s ambitions to grow the retail footprint in SA and into Africa. Brasher – who has vast experience in the international retail sector - reckoned that Pick n Paymade a better start to the year and was a stronger business than it had been six months earlier.
But he cautioned, “We were encouraged, but not satisfied in our pursuit of a sales-led recovery.” In an investment presentation he noted sales growth – up 7,7%toR63bn –was ahead of last year with more new stores and some improvement in the shopping experience. “But more needs to be done in a challenging trading environment.” “Our strategy remains customer-driven and sales-led, and lower costs enable us to invest more in customer offer and shopping trip, driving turnover. The hard work has begun in earnest – focusing relentlessly on the fundamentals of good retailing.” Brasher stressed the company’s continued investment in price–pointing out an internal inflation of 5,3%onproducts sold compared with a Consumer Price Index of 5,8% over the year to end February 2014. The push to maintain Pick n Pay’s image of “being on the side of the consumer,” however, does come at a cost. While some encouragement can be taken from Pick n Pay maintaining its gross margin at 17,5% in competitive trading environment and improving net margins from 1,3% to 1,6%, the company is still lagging its main competitor Shoprite and specialist, upmarket retailers like Spar and Woolworths.
Put another way, Pick n Pay is banking just 1,6c for every R1 in sales. This is by no means a comfortable margin, and Brasher will hopefully be able to push this margin beyond 2,5% within a few years. In this regard Brasher can take some encouragement that trading expenses were cut down to 0,4% of turnover (despite the opening 111 new stores during the financial year.) What’s more, like-for-like expenses increased by only 0,8%, and Brasher pointed out that above inflation wage rate increases were offset by higher productivity and better labour scheduling. He conceded, however, that there was further to go in reducing costs and increasing productivity.
“We are not satisfied…we want to see more improvement and more growth.” Brasher said there were plans to drive the margin improvement further, “enabling us to invest more in the shopping trip and grow sales.” What Brasher is doing in the interim is ensuring Pick n Pay increases its footprint. During the past financial year 111newstores opened, with Brasher claiming “good new space growth,” but more subdued like-for-like growth from existing stores. He said the 111 stores opened were equivalent to 5,8% of new selling space. At the same time though, Pick n Pay closed 26 under-performing stores, resulting in net new trading space growing by 3,4%. Brasher said Pick n Pay had seen a robust opening programme in the second half of the financial year with 67 new stores opened. He said there was a strong expansion pipeline for the financial year ahead with over 100 new stores planned.
Pick n Pay’s investment presentation showed the company invested R592m in new stores and another R319m on upgrading existing stores. Investment in future infrastructure was R158m, with another R191m set aside for maintaining current infrastructure. Brasher said 70% of PicknPay’s investment was focused on expanding and improving the shopping experience. Interestingly Pick n Pay is seeing major expansion in its ‘secondary’ supermarket brand Boxer. Boxer opened 29 new in the year to end February 2013, and – according to Brasher – achieved market share growth in challenging market conditions. Boxer is also trying to offer different trading formats to cater for customers’ specific – including Boxer Superstore, Boxer Punch and Boxer Build. Pick n Pay’s play for a game-changing initiative via its loyalty card, Smart Shopper, appears to be on track.
There are now almost eight million Smart Shoppers with a rather impressive 3,3% increase in sales participation in the year to end February. After better, more targeted and relevant Vouchers, Brasher disclosed that Smart Shopper’s voucher redemption was four times higher than last year. He added that the average basket size for Smart Shoppers was up 3,1%, and that transaction value growth was 5%higher than for non-smart shoppers. Brasher said more initiatives and more partners were planned for Smart Shopper this year.