Whisper it softly, but it seems that this time, Pick n Pay's turnaround strategy might actually be
Question:
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 22.3% to top R1bn, while its trading profit margin, a key figure for retailers, had improved to 2.1% from 1.9%. It's still some way lower than Shoprite's 5.3%, 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 R1 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 4.5%. 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 26.5% 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 the eyes of the shopper. It has good leases, increased product availability on the shelf and improved specialist sections — like its bakery, butchery and fresh food. "However, the key question for investors is whether Pick n Pay is a great investment at the current price — and I would hesitate to answer that one as positively as the question about the turnaround," he adds. Operationally, though, Verster says the company can recapture its former glory. "It can be great again, notwithstanding some of the operational issues. Brasher is turning the company around. But the current share price already discounts the turnaround."
As the war for dominance in the retail sector heats up, organizations are faced with several challenges. Demonstrate how Pick 'n pay can use the ten (10) decision areas of Operations Management to regain its top spot as the leading retailer in South Africa
Smith and Roberson Business Law
ISBN: 978-0538473637
15th Edition
Authors: Richard A. Mann, Barry S. Roberts