Somewhere around a month ago, upon the release of Pick n Pay’s interim results, a single number (hidden in the reams of figures) stood out. The group had opened a net four corporate-owned Boxer supermarkets and shut four Pick n Pay stores in the six months, meaning that it didn’t open a single (net) new store.
Executives at the Brackenfell-headquartered Shoprite would’ve surely been staring, dumbfounded at this. How could its largest competitor be in this position?
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Listen/read: PnP posts its first-ever loss …
It would be tempting to sketch this as a one-off. However, since the middle of 2021 (in the depths of the Covid-19 pandemic and the only point from which Pick n Pay reported this data), the Pick n Pay group (Pick n Pay and Boxer) added a net 32 supermarkets (deliberately excluding liquor and clothing).
In that same time, Shoprite added more than five times as many supermarkets. It now has a total of 1 368 stores versus Pick n Pay’s 1 028 (this figure is somewhat generous as it includes smaller-format Express and Market outlets). These compare to 1 189 and 996, respectively, in mid-2021.
The Shoprite group has been running rings around Pick n Pay.
Yet the headline numbers in recent periods looked so healthy! A whole 27 new Boxer stores (turns out 22 of them are Liquor stores!) demonstrated this ‘growth’. On the Pick n Pay front, a similar number of liquor stores were opened, but the group shut four corporate supermarkets and another seven franchise stores. On a net supermarket basis (including franchise stores), it actually lost seven food and grocery outlets!
This, then, is a fair summary of where both these retail giants find themselves. Shoprite: growing (read: taking) market share from competitors consistently, and Pick n Pay: battling to even keep sales at the same level as the prior year.
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Boxer is doing fine, albeit with a store rollout that is more than 25% behind the level it had targeted just nine months ago. How did this plan go off the rails this badly?
Core Pick n Pay brand at fault?
The giant problem facing the controlling Ackerman family is the core Pick n Pay brand. This is what CEO Sean Summers, at age 70, has been parachuted in to fix. In the six months between March and August, like-for-like sales grew just 0.8% (better than the 0.3% overall growth, which shows how the shuttered non-performing stores and space had dragged the business down). Internal selling price inflation across the group was 8.3% in the six months, meaning volume growth was down by 7.5% – a shocking number.
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Boone out as Pick n Pay CEO, Summers back in
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This, despite then-CEO Pieter Boone’s plan to effectively try split the Pick n Pay business in two: core (read: upper-middle-class) stores that readers of this website would recognise, and something in between a Pick n Pay and Boxer, which emphasised bulk commodity goods (flour, maize meal, sugar, oil) and which had a far smaller selection of items. The jury remains out on this strategy (more on this soon), but the overall sales numbers are what they are.
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Contrast this with Shoprite’s update for the three months between July and September. Sales at supermarkets in South Africa (including liquor) are up 13.3%, with internal selling price inflation of 8.3%. This means real sales growth of 5%.
Given this was a quarterly update, we will not see the split of supermarkets versus liquor, but it is impossible to see this group not achieving real sales growth in groceries in the three months.
In the quarter, it opened 13 supermarkets (two Checkers, six Shoprite and five Usave). This means it opened nearly twice the number of stores in the last three months that Pick n Pay shut in six months (seven stores, net)!
The underlying growth continues to come from liquor stores – witness the Pick n Pay and Boxer numbers. Shoprite opened 18 Liquorshop stores in the most recent three months, more than the number of supermarkets it built.
For now, Pick n Pay’s constrained balance sheet and the trading performance of the core PnP business will see it pull back on new store openings. It says: “These banners continue to prioritise the effort to drive a like-for-like sales recovery ahead of space growth”. Boxer will remain the growth engine, and the group says it “remains on track to achieve the goal of opening 200 new stores between FY22 and FY26 and doubling sales in the process”. Many of these will be liquor stores.
To put that into perspective: the Shoprite group will open 195 new stores in South Africa this financial year.
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