ARTICLE THREE Pick n Pay announces changes to its core retail brand Pick n Pay has announced sweeping changes to its core retail brand and on-demand online delivery strategy 17 MAY 2022 NICK WILSON In what could be the biggest reorganisation of its business in its 55-year history, Pick n Pay has announced sweeping changes to its core retail brand and on-demand online delivery strategy as it ups the ante in the battle for market share in the highly competitive grocery sector. As part of the changes announced on Tuesday, the JSE-listed retailer will split its core Pick n Pay retail offering into two separate distinct brands as it looks to significantly increase its market share in the discount, convenience and premium market segments over the next four financial years to 2026. The group, which already has a well-established online grocery platform, is also planning a major acceleration in the on-demand market, announcing it has formed a commercial service agreement with Takealot that will see a dedicated Pick n Pay on-demand grocery service on the Naspers-owned groups Mr D app. On-demand delivery refers to speedy delivery, often within an hour or earlier of a customer ordering groceries online. The deal, which will be officially launched in August, will also allow the retailer to tap into the 2.5-million active existing Mr D customers on the app. Pick n Pay hopes to increase its online sales eight-fold from its current levels in the years up to financial year 2026. At the same time, the JSE-listed retailer is also doubling down on its strong performing Boxer chain, reiterating its previously stated intention late last year of adding another 200 outlets to the discount retail brands existing 350-store footprint over the next three years. It plans to effectively double sales at the brand by 2026. Pick n Pay CEO Pieter Boone said the groups plans in the financial years leading up to 2026 would be about winning the customer back, building Africas No.1 discounter with our Boxer business and also building a market-leading online offer. As part of this strategy, Pick n Pay will also be applying performance-based incentives linked to the plan for senior staff to help it improve sales. 5 He said while there was a lot of negativity around SA because of its sluggish economic growth and power issues, among other concerns, he chose to view it differently, adding there was enormous potential in the formal food and grocery market, which was valued at R628bn in 2021. This market was expected to be worth R855bn by 2026. Its a fantastic country, it has huge opportunities to grow. We have a young society that is evolving as well. If you look at the development of the formal food and grocery market, it is a market that will continue to grow in the next five years by an additional R200bn. We would like to be part of that growth. We have a market share in this market of 16% and are well represented in the affluent and middle market, but underrepresented in the less affluent part of the market. The market is segmented, but nevertheless it is set to grow in all segments. The question is how are you going to capture that growth? Pick n Pay plans to fund its 2026 ambitions with cost savings of R3bn over three years. We are really coming out of what I call a more defence mode into an attack mode, said Boone, who concedes that the group has lagged its peers in terms of shareholder returns in recent years. But Boone also believes this is all set to change with the groups latest plans, adding that it believed it could increase its market share by three percentage points, or by around 20%. The brand changes form part of a strategic plan the group conceived in September last year called Ekuseni (the Zulu word for dawn) and will split the retailers core Pick n Pay brand into so-called Blue stores aimed at the upper middle to premium end of the market and Project Red stores aimed at the value and convenience market segments. The groups entire store footprint in SA is 1,913 stores including its Boxer brand, and just over 2,000 stores if the rest of Africa is considered, with Boone saying the plan is for the Project Red stores to end up comprising about 40% of the existing Pick n Pay brand offering. The development of seven pilot stores to showcase the Blue and Red store concepts is almost complete, with the group planning to launch three Blue stores and two Red outlets by the beginning of next week. Two of these blue stores are in Table Bay Mall and N1 City in Cape Town, with the other in Lonehill Shopping Centre in Johannesburg. Cape Town and Johannesburg will each get a Red store at the Vangate and Nkomo Malls 6 respectively. By June, two more Red stores will be launched in Goodwood and Eerste Rivier in Cape Town, with one Blue store in Hout Bay. As we speak, the final fine tuning is being done to those stores, he said The new concept stores will see a 30% reduction in the assortment of goods on offer, with Boone saying this was fact based and followed 7,000 interviews last year to gauge what customers were specifically shopping for in Pick n Pays own stores, as well as its competitors. The groups loyalty programme, Smartshopper, also provided insights and analytics relating to shopping behaviour which also helped the group make this strategic change. He said the stock-keeping units (SKUs), the scannable bar codes that help retailers keep track of what stock is selling and what is not, would decrease from about 25,000 in the upper-end Pick n Pay stores to 18,000 in the new Blue store concept. In the Red stores, SKUs would decrease from the current 12,000 SKUs available in the existing middle to value-end stores to about 8,000. Boone says the reduction in SKUs will help the group zero in on accurately providing for customer needs, and at the same time reduce shrinkage and wastage. You want to take complexity out of your business, where you are able to serve customers in a better, simplified though more efficient way that should lead to cost efficiency improvements that you can give back to customers by further improving your pricing and price perception. The plan also emulates what has worked very well at Boxer, which has famously adhered to SKUs of just 3,000. Boone says the Project Red name is a temporary one and that a permanent new name will be launched in time. As far as its current online platform was concerned, Boone said the groups current on-demand value proposition asap!, formerly the fast-growing grocery and liquor app Bottles that Pick n Pay acquired in 2020, was operational in over 390 stores already, but to make the serious inroads in the on-demand online market that it wanted, it realised it could not do it on its own. In terms of the agreement with Takealot, Boone says Takealot brings its expertise, industry leading technology and scalable delivery network to the table. He said Pick n Pays asap! app would be integrated into the offering provided alongside Takealot. We will launch in August 2022 and we will have a rollout phase with four stores. By the end of this calendar year we would like to have it operational in 190 stores. Pick n Pays 7 Smartshopper programme is also constantly being improved to provide better data analytics on what specific customers are buying so that it can tailor its marketing to specific individuals. We make more than one-million transactions a day and 80% of those are being swiped with the card. The amount of data that we collect is tremendous and is really industry leading and is definitely a value creator when it comes the plan for growth into the future. https://www.businesslive.co.za/bt/business-and-economy/2022-05-17-pick-n-pay-announces-changes-to-its-core-retail-brand/

1.4 Pick n Pay has announced sweeping changes to its core retail brand and on-demand online delivery strategy With regard to this statement from Article Three:

1.4.2 Critically discuss the steps that will be required in executing the required change. (20)

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