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Read the following articles and answer the questions…
Read the following articles and answer the questions that follow:
ARTICLE 1
Pick n Pay’s plan to topple Shoprite
The retailer goes into attack mode with the separation of its Pick n Pay and Boxer brands in its biggest shake-up since it was founded 55 years ago
19 MAY 2022 ADELE SHEVEL
Pick n Pay is splitting itself up and accelerating the rollout of Boxer stores in arguably its biggest shake-up since it was founded 55 years ago. Dutch CEO Pieter Boone describes it as moving out of “defence” mode and into “attack”. The group which for almost two decades now has lagged its once much smaller rival Shoprite has taken flak for being too broadly spread across its customer segments.
It’s hoping the strategy will spur growth in less-affluent markets, while also challenging rivals such as Woolworths at the top end. The plan for Boxer, catering to lower-income consumers, is to double sales over the next four years.
Boone says the combined brands will give “unrivalled proximity” to customers. “You take so much complexity out of the system. Imagine what that does for all of your processes, stock holding, wastage, shrinkage … and [for] clarity when it comes to providing your customer offering and the way you communicate.”
A partnership with Takealot, the country’s biggest online retailer and digital delivery company, will also be launched in metro areas in August, delivering on-demand sales from Pick n Pay. Says Evan Walker, portfolio manager at 36OneAsset Management: “I think their tie-up is interesting. That’s where Shoprite has taken some market share with its Sixty60offering and Pick n Pay might claim that back.”
Boone acknowledges that Pick n Pay’s overall market share has stagnated over the years, blaming a lack of differentiation and price competitiveness. The retailer has served all income groups in the same way, across one label, whereas Shoprite Holdings, for example, is split into Shoprite stores for the lower end and Checkers for the middle- to upper-income customer.
Boone hopes the new structure will enhance shareholder returns and reckons the changes should lead to a3% gain in market share by financial 2026.While Pick n Pay shares have bested Shoprite year-to-date they’re up 13%against 7.7%for Shoprite over three years the performance is decidedly less impressive. Against Shoprite’s gain of 37%and Woolworths’ increase of 29%, Pick n Pay shares have delivered a negative7% to investors including dividends.
In practice, the rejig means Pick n Pay outlets will split into a “blue”, upper-end division, and a “red” division aimed at the middle-income segment. The stores will offer a more focused range of items to boost efficiency and reduce costs; savings can be passed on to consumers, much like the discounters Aldi and Lidl have done in Europe. It also frees up cash which can be reinvested back into the business.
The three brands Boxer and Pick n Pay red and blue will each have its own leader.
While it seems, at first glance, somewhat cosmetic, “this is not a PR initiative or a quick fix”, says Boone.
Yet Walker says the changes are basic retailing; “it’s not rocket science,” he says.
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A MOUNTAIN TO CLIMB Pick n Pay vs Shoprite vs Spar vs
Woolworths Weekly – based to 100 240 Shoprite 220 Pick n Pay
Woolworths 200 Spar 180 160 140 120 100 80 Jul Oc…
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Much of the inspiration for the change comes from European discounters and Boone says a Pick n Pay team went to Europe to study trends.
“We all know that the discount models were born there, they’ve got good insights and context.”
It’s unlikely to be an overnight win, however. Boxer took a few years to come right, but, says Boone, it is now performing “outstandingly” thanks to “consistency in execution, a fixed range of 3,000 [products] not one more, not one less and fixed responsibility to one person. They changed about a fifth of top management to create more speed in the business.”
Boxer, he says, with its large own-brand turnover, is the cheapest option for the group’s customers, yet is still aspirational.
Pick n Pay red stores will have a range of 8,000stock-keeping units (SKUs), offer low prices on key lines, be convenient and provide “excellent service”. The blue stores will cut their SKU count from 25,000 to 18,000and will focus on fresh produce, meat and baked goods.
The first seven red pilot stores are open four in the Western Cape and three in Gauteng. By the end of the calendar year there will be 190of them. Boxer is already a separate company headquartered in Durban, while Pick n Pay operates out of Cape Town. Each has its own distribution centres.
The group conducted more than 7,000 customer interviews to obtain feedback and consulted franchise partners. Boone says the group has a loyal customer base, but: “Trying to serve everybody, but not in the most optimal way… We need to improve the service we have towards the customers and improve the price perception.”
At the moment, the new red stores are referred to within the group as “Project Red”
outlets, but Boone says this is a temporary working title. He thinks he knows what the permanent name will be, but first he has to test it out. “You can only change the name of the sub-brand related to Pick n Pay once. I want to do proper customer testing … I think I have the name but give us a few more weeks.”
Boone, who was previously COO at Metro AG, a German food wholesaler, has now been CEO for 12 months. Last year’s riots were clearly part of a baptism of fire but, he says: “I’ve taken it from a different angle. [SA] is a fantastic country, it has huge opportunities to grow, we have a young society that is evolving as well, and if you look at the development of the formal food and grocery market in the next five years, it’s due to grow an additional R200bn. And we would like to be part of that.”
SA’s food and grocery market was valued at R628bn last year and is forecast to be worth R855bn by 2026. Pick n Pay has a total market share of 16%, which breaks down to a 23% share of the more affluent market valued at R112bn and a share of just 11% of the less affluent market of R408bn.
“One thing plays in their favor,” says Alec Abraham, senior equity analyst at Sasfin: “this whole disruption in the property market is likely to have opened up sites in areas, so it will make it easier to achieve 200 stores in three years for Boxer.”
As for the partnership with Takealot, Pick n Pay will piggyback on the Mr. D app, which has 2.5-million active users. Asap! Pick n Pay’s current on-demand offering will be integrated into the system.
Clearly, Shoprite’s success with Sixty60 has caused much soul-searching within the company,though Asap! has shown “triple-digit growth, week after week,” says Boone.
How did the Mr. D partnership come about? “As a newcomer in a country you’re invited for a lot of cups of coffee … and I have to say Kim [Reid, Takealot’s founder] and I created a good chemistry and you know … one cup of coffee leads to some reflections and from there … We have been working on these more than 10 months.”
The goal of the four-year plan is to deliver group turnover growth at a compound annual rate of 10% double the 5.2%increase in turnover for the 52 weeks ended February that Pick n Pay announced this week. While profit before tax and capital items surged 24.9%, headline EPS were up a more modest 14.5% to 262.59c, yet the retailer upped its dividend23% to 185.35c a share.
Once again, Pick n Pay’s clothing division had an “outstanding” year, with sales up 21%. A strong start to the 2023 financial year has seen sales grow 9.9% over the first eight weeks, despite an increasingly grim picture of decay, sketched by chair Gareth Ackerman this week. “There is little management of infrastructure and service delivery is very poor. So poor, that we are finding it difficult in some places to secure insurance of our assets, “he told analysts in the company’s results presentation.
The long-term consequences of last year’s riots mean increased security and insurance costs for the foreseeable future.
At the same time, SA’s retailers face yet another grocery market inquiry by the Competition Commission, which Ackerman derided as a cost in both money and time. “It would be helpful if government agencies concentrated on the job at hand,” he said.
Pick n Pay has put no price tag on the shake-up, which it says will be funded through cost savings, better cash management and working capital, as well as some medium-term borrowing.
Investors are likely to see more detail in segmental sales reports from the first half of this financial year.
Boone says Pick n Pay has been seen as a conservative company and kept its cards too close to its chest. “Let’s be open, let’s share the information. There are levers in the business that are performing very, very well. There are levers in the business where we can improve. Clearly in the retail part we can and will improve.”
https://www.businesslive.co.za/fm/money-and-investing/2022-05-19-pick-n-pays-plan-to-topple-shoprite/
ARTICLE 4
Shoprite set to stride ahead by a country mile
SA’s largest retailer has quietly diversified its products and offerings to place it ahead of competitors
27 SEPTEMBER 2022 KATHARINE CHILD
Shoprite has quietly added pet foods, outdoor camping gear and banking to its sprawling network of grocery store chains that has turned it into SA’s largest retailer.
The new offerings are the result of Shoprite capitalising on its vast distribution centres and customer data feedback from its fast-growing loyalty programme.
Earlier in September, Shoprite best known as a discount grocery store chain of the same name opened a second speciality baby store named Little Me in Cape Town, and will follow that with an expansion of its camping stores after the success of its inaugural store, named Outdoor, in Hermanus
The company, which transformed from a six-store company in the 1970s into a titan of African retail, became the first retailer to offer a fully fledged bank account in recent weeks. What is more, it already runs 47 speciality pet stores under the Pet shop Science brand.
The quietly conducted diversification drive comes after the company all but abandoned its ambitions to serve millions more customers in Nigeria, where it learnt that it is one thing to roll out stores in large but risky markets, but quite another to do so profitably.
After pulling out of Kenya and Madagascar, it remains in10 African countries. It recently faced difficulties accessing currency in Malawi until the government helped it get hold of the hard cash it needed to buy stock. Shoprite says it will stay on in Malawi for now but will review this. The hunt for new income steams also puts other sectors of SA’s economy in the cross hairs.
Image transcription text
CHASING NEW INCOME STREAMS SHOPRITE Share price, daily
close (cents) 25000 24000 23000 22000 21000 20000 19000
180DO OINID 2021 JIFMIAMIJIJIAS 2022 Close 9% …
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Gryphon analyst Casparus Treurnicht says with its low-end banking product.
Shoprite could give Capitec a run for its money, even as Capitec was a “first mover” in reaching the unbanked. Shoprite accounts cannot have more than R25,000 in at a time.
“Shoprite is also in more locations than Capitec, so why would a lower income client not use Shoprite banking product?” he said. “And you can bet on the fact that there will be specials for banking and shopping at the same store.”
In the annual results presentation earlier this month, CEO Pieter Engelbrecht said Shoprite aims to have a “greater share of the consumer’s wallet” and to use its “platform” to tap into alternative sources of revenue. In other words, it wants to use its distribution network, brand, the customer data of its 24-million loyalty members and delivery capabilities to sell even more.
Engelbrecht previously told Business Day that premium pet food brands were sold only at vets and speciality pet food suppliers.
Shoprite’s Checkers, with the group’s other brands, gained market share in the year to July 3. Picture: Supplied So, after struggling to find a pet food chain to buy Shoprite decided to open its own pet stores, Pet shop Science, allowing it to sell high-end food to wealthier animal lovers. It included on-demand delivery within an hour, thus forcing other retailers to follow suit. It also now allows consumers to set up a monthly delivery of pet food at a scheduled time.
Engelbrecht, who owns two dogs and has his pet food delivered every 45 days, says: “I use it [delivery service] myself because it’s a schlep to walk about with a 10kg bag of dog food.”
Other auxiliary income streams for Shoprite are Computicket, which sells bus and event tickets, in-store pharmacies and furniture chain House & Home, as well as liquor stores.
Like Pick n Pay offers Hollard insurance products, Shoprite sells Outsurance’s
financial products such as funeral policies and pet insurance through its money market counters.
Its vast store network and access to SA shoppers has attracted other partnership agreements, including with holding company RMI, which said in its latest results presentation that growth in Outsurance funeral policies could be attributed to its relationship with Shoprite.
All Weather Capital analyst Chris Reddy, whose firm owns Shoprite shares, says the retailer is beginning to offer competition to Clicks and Dis-Chem as it expands into baby goods.
Engelbrecht said at a results presentation earlier this year that five years ago he never thought Shoprite would be selling high-end strollers worth R30,000.
Dis-Chem has expanded into baby goods by buying Baby City in 2020, where it has added clinics for baby vaccinations and antenatal care for mothers relying on its pharmaceutical expertise. It aims to tap into the demand created by a million new babies born each year. Clicks has also upped its investment in the baby market, selling baby products online, and two stores in SA open for parents to view larger goods such as car seats and cots.
Now they need to contend with Little Me goods.
Shoprite and Checkers, in the same vein as direct competitors Woolworths and Pick n Pay, are continuing to invest in private label goods as consumers buy down from branded products. A walk through Checkers shows that often its own goods are on promotion in stores.
It has introduced its own salad dressing, sauces, mustards, vegan and gluten-free ranges, as well as baby ranges, sweets, premium foods and shampoo and body washes, competing with Dis-Chem and Clicks.
Shoprite is an expensive share for some, with much of its success priced in, even as it faces a weak consumer ahead.
But former chair for four decades Christo Wiese clearly believes the Shoprite share will rise. He bought R224m in futures contracts earlier in September, and his
firm, Titan, also bought R1.7m in shares.
https://www.businesslive.co.za/bd/companies/retail-and-consumer/2022-09-27-news-analysis-shoprite-set-to-stride-ahead-by-a-country-mile/
Questions:
(1.1) ‘Pick and Pay’s plan to topple Shoprite’ (Article 1)
‘Shoprite set to stride ahead by a country mile’ (Article 4)
Assess whether Pick and Pay has ‘succeeded’ in its ‘plan to topple Shoprite’ – (11 marks)
