QUESTION TWO $[25]$

Read the following article and answer the question that follows:

Can Pick n Pay regain its former glory?

Whisper it softly, but it seems that this time, Pick n Pay's "turnaround" strategy might actually

be working. Richard Brasher, the soft$-$spoken Englishman recruited shortly after he left UK

retail giant Tesco after clashing with the top brass over strategy, seems to have had much

more luck in muscling Pick n Pay back onto the right path. Despite the company$$s storied

history, success wasn$$t inevitable. Not many held out much hope when, in $2013,$ Brasher

was hired to lead a "turnaround" $$ yet another in a seemingly never$-$ending cycle of revival

plans going all the way back to Nelson Mandela$$s presidency. At the time, Brasher $$ a

dyed$-$in$-$the$-$wool retailer with $26$ years at Tesco $$ said: $"$We need to give people more

reasons to shop with us$."$ On recent evidence, it appears he has done just that. Its market

share, bleeding for years, has at least now been bandaged. Paypoints work faster; there$$s a

better choice for customers on the shop floor.

And this has translated into its bank accounts. Last month, Pick n Pay$$s full$-$year results

showed its profits had soared $22\mathrm{.}3\%$ to top R$1$bn$,$ while its trading profit margin, a key figure

for retailers, had improved to $2\mathrm{.}1\%$ from $1\mathrm{.}9\%.$ It$$s still some way lower than Shoprite$$s $5\mathrm{.}3\%,$

but it$$s progress. Investors, who had abandoned Pick n Pay for Whitey Basson$$s more

dynamic Shoprite or the aspiring multinational Woolworths, have begun to trickle back. Pick

n Pay$$s share price is up $28\%$ over the past year $$ outpacing Shoprite $($up $4\%$ over that

time$),$ Spar $($up $10\%)$ and Woolworths $($down $8\%).$ This has revived talk of its glory years

when, under Raymond Ackerman, Pick n Pay first wrenched market share away from the

likes of Checkers and OK Bazaars. It wouldn$$t be the first "great" company to have fallen

prey to more nimble rivals. US department chain Macy$$s$,$ once the poster child for retail, has

fallen on such hard times that it lost $60\%$ of its share price over the past decade. It$$s not

alone: department stores such as Kohl$$s$,$ Dillard$$s and Nordstrom posted the worst

comparable sales declines since the $2008$ recession. In SA$,$ OK Bazaars was once the

leading retailer but failed so spectacularly that it was ultimately bought for R$1$ by Shoprite.

$"$Of course, it $[$Pick n Pay$]$ can be great again," says independent analyst Syd Vianello. $"$It$$s a

phenomenal brand. It$$s not a brand in terminal decline where the product has become

irrelevant: to take a video shop and make it great again because the industry is in near$-$

terminal decline is impossible. But the supermarket industry is not in decline.

But under Brasher, there is certainly new energy. In the past financial year, $175$ new stores

were opened under its two core brands $$ Pick n Pay and Boxer $$ increasing total space by

$4\mathrm{.}5\%.$ Of course, it$$s one thing to talk of numbers, quite another to see real change on the

store floor where, ultimately, Pick n Pay$$s success will be judged. And the new stores reflect

this new energy. At Benmore Gardens, a stone$$s throw from Africa$$s richest mile in Sandton,

the refurbished store feels more spacious than ever. Floor tiles are bigger, aisles are wider

and the ceilings are higher. The bakery, deli and butchery are all clearly demarcated.

There$$s even a sushi bar. It$$s Pick n Pay $$ just not like you know it$.$

And while Pick n Pay has been seen as "too conservative", it is now taking risks that its

competitors aren$$t$.$ The retailer is planning to open in Nigeria, a notoriously difficult

environment where Truworths and Woolworths pulled the plug after deciding it wasn$$t worth

the trouble. "I don$$t want to be defined by the people who left early," says Brasher. "All

markets are hard. The interesting thing is if you were coming to SA from London you

wouldn$$t say SA was a picnic either." Financially, Pick n Pay is also being a lot smarter than

it used to be$.$ For one thing, analysts have homed in on how a fair amount of profit is coming

not from the traditional grocery business but from an opaque line$-$item called "other income".

This "income" grew by more than $30\%$ last year $$ and was the biggest reason for Pick n

Pay$$s improvement in margins. Jean Pierre Verster, portfolio manager at Fairtree Capital,

says "other income" was a significant driver of profit. $"$It would seem that supplier rebates,

marketing contributions, financial service income and the fees for information they give

suppliers in terms of the Smart Shopper programme are growing strongly," he says.

With cash flows improving, this is less of a gripe. Investors will have been cheered by the

$26\mathrm{.}5\%$ increase in the dividend. Clearly, the $30\%$ surge in Pick n Pay$$s stock suggests the

market believes Brasher has already succeeded in the turnaround. But despite the good

news, the shares aren$$t exactly cheap. Verster says Pick n Pay has not lost its positive brand

association in t