“Pick n Pay Brand Match has been enthusiastically welcomed by customers. It is building confidence in our prices and strengthening loyalty in our brand,” said Richard Brasher, CEO of Pick n Pay.
Brasher added that Pick n Pay customers are pleased that they no longer have to shop around in order to get the best prices. “It has given customers confidence in the competitiveness of our prices,” said Brasher.
“For the majority of baskets, customers get a slip telling them we are cheaper or the same price. Of coupons issued, more than 60% are for less than R5. Brand Match provides useful insights into customer baskets and competitor pricing,” said Brasher.
For more on what Brand Match is, click here.
Competitive environment
Pick n Pay’s first year results for the first six months showed an increase in turnover of 6.8%, 35% growth in profit before tax and a 35.8% improvement in earnings per share. However, Nilan Morar, head of trading from GT247 believes that the results are not as good as expected.
“The results at face value looked quite decent, but the market still expected more and they took the stock down 2.4% yesterday. So clearly the expectation for larger growth was there or growth from different divisions,” said Morar.
“The story is largely around like-for-like sales which I think disappointed, essentially, because once you build in for the effect of inflation then it doesn’t actually look as appealing as it did on face value,” said Morar.
However, Pick n Pay claimed its like-for-like growth was favourable. “Like-for-like turnover growth was 4% and net new stores contributed 2.8%, with trading space growing at a net 1.6% over the year. Growth at overall point of sale level was stronger, with owned and franchise stores growing till sales by 7.1%, with like-for-like growth of 4.7%,” said Pick n Pay.
Morar went on to explain that retailers across the board have had a general lower ratingthanks to the weaker rand. “Retailers of late, and I am talking the last couple of weeks, have all had a general rating a little bit lower, and the reason, I would imagine, has to do with the weaker rand. Retailers don’t typically like a weaker rand, because naturally that increases their cost of imported goods,” said Morar.
“Steinhoff - just as a point of reference - and I am normalising all of these retailers saying they start on a point of 100 from the first of January 2013 - Steinhoff has returned 97%, Shoprite, by comparison is actually down by 20%. Woolworths is up by 14%, Mass Mart is down by 35%, Spar is up 4%, Mr Price is up 65%, Pick n Pay is up by 12%. So largely, there is a broad range. On the one side there is a stock like Steinhoff that is up by almost 100% in a year andthen you have a stock like JD Group which is down by 40%. So Pick n Pay by price performance is in the middle of the spectrum,” said Morar.
Morar added that the environment at the moment for retailers and customers was a tough one, and that the effects of African Bank could still be felt. “I think the environment is tough. Consumers have been depressed for a long period now. Interest rates are low, and lending principals have tightened up to get access to funding. I think the effect of African Bank is still fresh on the mind of many,” said Morar.
Morar believes that Pick n Pay’s biggest competition at the moment is Shoprite. “Shoprite is extremely strong in providing for the low income food business, and I think that they are big competition, ultimately for Pick n Pay,” said Morar.
Expansion plans
Brasher went on to explain that Pick n Pay would be expanding its stores, looking at reaching new markets and offering a wider variety of products to its customers: “[Pick n Pay will be] opening more new spaces and serving communities we don’t yet reach. More on cost and efficiency – building a better Pick n Pay as well as improving returns, and further improving the shopping trip with more focus on fresh produce and better availability,” said Brasher.
Pick n Pay opened 46 new stores, and closed five underperforming storesand opened five new Boxer stores.
Furthermore Brasher said that there would be more innovation on value, as Pick n Pay has shown with Brand Match, and also finding new ways to help lower income customers hardest hit in a tough economy, such as was done with Mobile Money.
Overall results
Pick n Pay invested over R7 billion over the past five years, and said it would invest another R1.6 billion this year in the business to help it grow and expand. Due to this, Pick n Pay will be creating more jobs: “We are on track to create more than 3,000 new jobs this financial year,” said Gareth Ackerman, chairman of Pick n Pay.
“25% of our learning and skills programmes have been awarded to previously unemployed people and more than 10% of all staff between assistant manager and senior managers are enrolled in academic leadership programmes,” said Brasher.
Pick n Pay acclaims it is a more organised business, with diverse innovations such as Smart Shopper, Mobile Money and Brand Match. “Our progress on costs and efficiency is building a stronger Pick n Pay. Our business is more organised, more efficient, more productive, and more forward-looking than it was a year ago,” said Brasher.
Smart Shopper was also voted best loyalty programme for the second year in a row. Brasher said that there are now 8.6 million smart shoppers, with redeemed Smart Shopper offers up by 46%.
Pick n Pay saw an improved profit performance for the half-year ending 31 August 2014. “In a challenging market, pre-tax profit was up 35% on the previous six months, with trading profit up by 21.8%. The profit before tax margin was 1.1%, up from 0.9% last year,” said Pick n Pay in a statement.
| 26 weeks ended 31 Aug 2014 | 26 weeks ended 01 Sep 2013 |
% Change |
|
| Total till sales | R37.4 billion | R35.0 billion | 7.1 |
| Turnover | R32.1 billion | R30.1 billion | 6.8 |
| Gross profit margin | 17.7% | 17.9% | |
| Trading profit | R386.6 million | R317.5 million | 21.8 |
| Trading profit margin | 1.2% | 1.1% | |
| Profit before tax | R366.8 million | R271.8 million | 35.0 |
| Basic earnings per share | 54.4 cents | 40.05 cents | 35.8 |
| Headline earnings per share | 54.39 cents | 40.8 cents | 32.3 |
| Interim dividend per share | 19.6 cents | 14.8 cents | 32.4 |