Once the largest South African retailer on the block, Pick n Pay has been sleepwalking through a crisis for more than a decade. Founded by retail legend Raymond Ackerman in 1967, Pick n Pay was once front-of-mind for consumers for decades; he was touted as the “housewife’s friend” and depicted as a champion for the consumer.
Today, it’s a different story. Pick n Pay is now the least valuable retailer on the JSE, floundering in terms of its strategy, shedding market share, and set to report its first half-year loss ever in the next few weeks.
“They’re like a deer in the headlights and don’t know which way to turn,” says one industry veteran. And while Pick n Pay has been operating in what is known as a “defensive category” (as people have to eat), even this has proven no defence as shoppers have chosen to shop elsewhere.
The core grocery business is struggling, with volumes down 9.5% in Pick n Pay’s South African business as it shouldered a mammoth R610m in extra diesel costs, retrenchment costs, and other expenses over the first six months of its financial year.
It’s a trajectory as evident on the shop floor as it is on the JSE.
Last week, in Cape Town’s Sea Point, the Spar and Checkers in The Point mall were bustling, with parking elusive. Yet in the sprawling Pick n Pay in the listless Adelphi Centre nearby customers were few and far between.
On the JSE, while Shoprite’s share price has risen 56% over the past decade and Woolworths has risen 17%, Pick n Pay is 3.6% lower than in 2013. Only the recently bloodied Spar has done worse.
This is why David Holland of Fractal Value Advisors and a former adjunct professor at the University of Cape Town’s Graduate School of Business reckons Pick n Pay doesn’t have time on its side. “Ten years ago there may have been a lot of interested buyers, not so much today.”
There remain glimmers of hope: its low-cost supermarket chain Boxer is growing and has “phenomenal” potential, insiders say. But it can hardly carry the group alone. Equally, Pick n Pay Clothing is another bright spot, with its revamped stores doing better than ever.
Yet this fails to mask the deeper problem, which is that the central supermarket business is a mess. As one veteran retailer tells the FM: “What they used to do so well, they don’t any more. They lost their way in the basics of retail in terms of merchandising and pricing. If there was clear leadership this wouldn’t be happening”.
So what went wrong for Pick n Pay?
Some experts attribute it to a lack of leadership, a fuzzy vision of where the company wants to go that’s conspicuous by its comparison to the laser-focused Shoprite, especially during the tenure of its hard-nosed former CEO Whitey Basson. Others say Pick n Pay has lost strong dyed-in-the-wool traders, retailers and merchandisers — the kind of people who grew up on the shop floor.
Top retailers will tell you it’s all about the detail, and focus on the consumer experience. “These businesses are simple at the end of the day: when you walk into the store it’s how you feel about it,” says one stalwart.
Today, he says, the vitality that was evident during Raymond Ackerman’s early years is no longer there. “The style of the company is not the style that Raymond had,” he says.
And yet the elephant in the room is the role that the founding family itself played in creating this dire state of affairs.
The Ackerman albatross
If this topic seems ungenerous, it is because Pick n Pay only hit the heights it did in the first place thanks to Raymond Ackerman, who cut his teeth working at the Ackermans chain, which was started by his father Gus and three of Gus’s friends in the 1950s.
Ackermans was later bought out by Greatermans, and Raymond, after helping build the fledgling Checkers chain from three stores to 89, was booted out. It was then, in 1967, that he created Pick n Pay.
It was one of South Africa’s greatest retail successes. By 1999, Pick n Pay’s market share trumped that of all its rivals combined (including a fledgling Shoprite). Raymond was fêted as a retail visionary, with a reputation that extended far beyond the country’s borders.
When he stepped down as chair in 2009, Pick n Pay had a market value of R20.5bn and 780 stores. Today, 14 years later, it is worth just R18.4bn. The family’s stake is still worth R4.5bn, but it’s clear Shoprite and even Spar have left the Ackermans’ retailer in their shadow.
As one analyst tells the FM: “The share price is where it was in 2006, and the family shareholder adds no value — if anything it prevents necessary actions from happening. This is a decade of neglect that is coming home to roost.”
Yet the family doesn’t seem aware of this sentiment.
Speaking at last month’s Pick n Pay AGM, chair Gareth Ackerman (Raymond’s son) reminded everyone that the family is the controlling shareholder, whose rights are clearly explained in its corporate governance documents.
“The company has been listed for more than 50 years on the JSE, and had the same controlling shareholder. Investors are aware of this when they make the decision whether or not to invest.”
Sadly, investors are all too aware. Increasingly, Pick n Pay’s sluggish long-term performance, interspersed with spurts of growth, is being attributed to the family’s control. The situation is so grim that while there is talk of a sale, there are growing whispers that it might be too late.
If so, it would be a huge waste. The prospect of what was, for decades, the most innovative retailer in the country wasting away seems incomprehensible.
Perhaps the saddest part of the unwinding of this legacy is that the family has been constantly alert to the possibility. In several interviews in recent decades Raymond spoke of the danger of founding families staying too long. He talked of the need to hand over to professional managers, and seemed to think his family had hit the right balance between family control and professional management.
In April 1999, when Sean Summers was appointed as CEO to succeed the then 68-year-old Raymond, the announcement itself was the first warning that the family would struggle to let go.
The statement stressed that while Raymond was handing over the CEO reins, he would be staying on “as full-time hands-on chair”.
Every word in that statement oozed reluctance. “Once we, as a family, understood that we had to separate the roles of family, ownership and management, the solution was straightforward, we had to appoint a CEO, and we had to choose the very best person for the job,” it said.
Then, over the next 20 years, the family chose three more CEOs — all of whom have fundamentally failed to restore Pick n Pay to its past glory.
One fund manager says it’s always been tough to engage the Ackermans “because of their extraordinary arrogance and it’s almost impossible to get a meeting with them”.
The problem is well described by an outside executive who went to visit the Pick n Pay CEO a few years ago. He recounts how he first had to pass through many Ackerman offices before he got to his meeting with the CEO.
But in an interview with the FM this week, Gareth rejects the view that the family has been an albatross for Pick n Pay. “I don’t believe we hold the business back at all. There are no executive family members in the business any more,” he says.
If anything, having a long-term shareholder of record, willing to take decisions that could pay off years later, has been good for Pick n Pay, he says.
“That’s what Pick n Pay has been doing for years. I don’t think, if you didn’t have a controlling shareholder you’d be able [to put a workable] strategy in place because you’re worrying too much about the short-term nature of the profits.”
But analysts point, in particular, to an overly generous dividend policy, which ensured the Ackerman family were paid out hefty half-year dividends, but which left little for investment in new infrastructure.
Independent analyst Syd Vianello says Pick n Pay has been paying out more than 70% of its profits through dividends for decades. This allowed the family to diversify their wealth but was arguably “to the detriment of the company”.
Gareth rejects this too. He says the board’s decision was that Pick n Pay wouldn’t invest more in any one year than it generated in cash.
“It was never a dividend decision — it was always based on cash generation,” he says. “We’ve always used our own resources to build this business”.
In 55 years, he says there’s only been one time when the company raised new capital from shareholders. Now, for the first time, they’ve raised long-term debt to invest in the future.
“Was that the right decision or the wrong decision? I don’t know, but that was what the board decided over many, many years ... it was never a family-driven issue, it was always a board-driven issue: how do you keep the business cash positive?”
And, he points out, the family still has more than 70% of its wealth tied up with Pick n Pay.
Pulling the strings
Still, it’s hard to divorce Pick n Pay’s trajectory from the Ackermans, in part because the family, as the controlling shareholder, continues to pull the strings.
It was Raymond’s decision to appoint his protégé, Summers, as CEO in 1999 — a Pick n Pay lifer of 34 years. Remarkably, given the scrutiny, Summers performed well: turnover grew, as did store numbers, operating margin was strong at about 3%, dividends pumped and the group’s market cap grew.
Then momentum slowed. The damage stealthily being wreaked by Shoprite, as it gnawed away at Pick n Pay’s market, became apparent. Nonetheless, when Summers resigned in 2006 (rumour was his view on how much influence the family should have diverged from Raymond’s), it was the most valuable South African retailer, worth R25bn, compared with Shoprite’s R18bn and Mr Price’s R10bn.
Summers was replaced by another Pick n Pay lifer, Nick Badminton, whose strategy to improve efficiency seemed to deal with some long-term challenges — its high cost base, outdated IT systems and ongoing labour problems. And by 2010, the 80-year-old Raymond was comfortable enough to hand over the chair to 52-year-old Gareth.
But he wasn’t going far: “Raymond Ackerman will stay on in an advisory role as ambassador for the company and will continue to work out of the Cape Town office,” said the company.
This unprecedented sinecure harked back to what Raymond had said more than 10 years earlier, which is that the family had always enjoyed “co-branding” with Pick n Pay. Indeed, such was the extent of it that, with the exception of 2021, when he was stricken with Covid, Raymond celebrated his birthday in the midst of the Pick n Pay stores.
While things started well under Badminton, it soon became evident the fundamental problems hadn’t been fixed. So, in February 2012, Badminton quit and Gareth became executive chair. The once-dominant retail group was now not only fending off Shoprite and Woolworths, it was facing a Walmart-backed Massmart.
In 2013, Richard Brasher became not only the first external candidate appointed to the top job, but also the first non-South African. The market welcomed the move, assuming that Brasher, who had led UK retailer Tesco, would be less enthralled by the family.
Vigorous cost cutting and a spurt in profit saw the share price leap beyond R70. Under Brasher, Pick n Pay’s store network almost doubled, and turnover grew from R55bn to R90bn — it was Brasher who identified Boxer as the gem in the group, though it now turns out this meant its core retail business may have been neglected.
Evan Walker, portfolio manager at 36One Asset Management, says Brasher put it on the right path but “he didn’t have heaps of capital and was constrained by a high dividend payout”.
Walker says that, had the dividend been cut to zero then, Brasher would have had a better chance. “This would have allowed him time to catch up and revamp stores. But the management is beholden to a family for a dividend.”
In 2021, Brasher was replaced by the company’s second external CEO appointment, when Dutch citizen Pieter Boone took the reins. As the former COO of German retailer Metro AG, there were high hopes he’d finally return Pick n Pay to its former glory.
Research at the time flagged three critical issues: the retailer had to improve its pricing strategy in a weak economy in which customers are looking for bargains; Pick n Pay didn’t appeal to its customers; and the customer service was inconsistent or poor.
This illustrates what many knew: whatever the merits of having the family looming over the business, Pick n Pay had made no end of strategic blunders.
Getting the market wrong
Holland tells the FM that “the company has gone nowhere” since 2008.
He says much of the past 20 or so years at Pick n Pay have been characterised by constantly changing strategies; from focusing on the premium end of the market to switching to the low end; and from not investing much in Boxer to making it a key focus.
This was reflected in yet another corporate mea culpa in 2013, when the group acknowledged it wasn’t world class, and gave itself six years to re-establish its premier brand.
Holland says the group “did have a few good years under Brasher but once again that improvement wasn’t sustained”.
At about R38, the current share price is below the level it traded in 2013.
Vianello says the strategic errors, in fact, began 20 years ago.
At the time, Pick n Pay stuck to the middle market, even as Shoprite began opening stores in townships, while Woolworths went hard for wealthy consumers. “At the end of the day, retailing is all about space ... I don’t believe they opened sufficient stores in the right areas to target the movement of customers and more particularly, the emerging market,” he says.
And, unlike Shoprite, Pick n Pay also delayed using a centralised distribution model until it was far behind the curve. “It goes to show in business that if you make one strategic error, and other competitors move forward, you’ll be left behind,” says Alec Abraham, senior equity analyst at Sasfin Wealth.
It made badly advised acquisitions too. In 2002, Pick n Pay expanded into Australia, which tied up capital for 12-14 years. When it finally extracted itself, it was way behind at home, with rivals having put up another 2,000 stores.
On e-commerce, Pick n Pay has also been caught napping.
Vianello says Checkers got the jump on it with its delivery service Sixty60. “Judging from anecdotal evidence I fear they may never get that market share back,” he says.
David North, Pick n Pay’s chief business transformation officer, tells the FM that his company has at least arrested the online shopping market share losses. “We’re not neck-and-neck, but we’ve stopped them growing ahead of us in terms of online,” he says.
This illustrates, again, how Pick n Pay has long been compared unfavourably with Shoprite Checkers, which has been leaner and meaner for years.
While Pick n Pay stuck to its middle- and upper-income market, Shoprite’s Basson saw huge potential in the mass market, which he felt had been neglected. Social grants, he realised, would be a vital part of the food retail landscape in future. He bought Usave, OK (for R1) and revitalised Shoprite.
Says Walker: “Shoprite has just been too good, and the Checkers execution means it’s done a better job of creeping towards the Woolworths customer than Pick n Pay.”
Vianello says Checkers had the dexterity to open smaller stores in areas where the middle- to upper-income market has moved, while Pick n Pay continued to run big stores in areas that were already saturated.
“Checkers has been focused on price and positioning and the layout and beautification of the stores. They got that right and Pick n Pay didn’t. The new sheriff in town should be Boxer, but it takes time,” he says.
Much of the company’s hopes, in fact, rest on Boxer. Abraham says this is ambitious, as it is taking on a strong incumbent in Shoprite. “My question is whether they have distribution capacity and capability to effectively and efficiently distribute to those places in peri-urban areas,” he says.
Says one veteran: “They don’t know what market they’re going to from a shopper perspective and, when it comes to categories of merchandise, whom they’re appealing to.”
Ya’eesh Patel, analyst for SBG Securities, says Shoprite has had a “golden period of uninterrupted market share gains”, and it has grabbed shoppers on all sides of the income scale, including among the top income earners. “This has negatively affected various industry players, including Woolworths, Spar and Pick n Pay,” he says.
Retailers with thinner margins (like Pick n Pay) have been left with a hard choice: either lower their prices to compete and sacrifice profit margins, or risk selling less.
The never-ending turnaround
So does Pick n Pay have a future? Or is the slow puncture set to continue, with the brand becoming increasingly irrelevant?
Speaking to the FM this week, Boone says the plan is to “execute” better and become more relevant to customers. “Yes, we lost relevance in the market in which we operate. It’s not to point fingers, it’s a given. It’s not something that occurred in the past 12 or 24 months, it developed over a number of years.”
In May last year, he began implementing a new “Ekuseni” strategy — which involved dividing the brand into Pick n Pay blue (Pick n Pay) or Pick n Pay red (Qualisave) — supposedly to “rejuvenate” the brand, and present a clearer customer proposition.
That Ekuseni strategy, he says, aims to “bring Pick n Pay back where it belongs, the preferred grocery retailer in the communities it serves”.
Boone says stores that have been fixed as part of this new strategy have seen sales growth of more than 10%.
So does becoming more “relevant” mean that Pick n Pay must go back to a more decentralised structure?
Not necessarily, says Boone. “But I think ... to create the proximity to the communities we serve, in a city like Bloemfontein and a town like Caledon, requires a different type of thought process, a different type of leadership, responsibility and accountability.”
One part of the picture is wooing back customers, but it faces just as tricky a task to woo back investors, which would provide it with capital to invest in the turnaround.
Vianello says this is critical. “I don’t see them necessarily running out of money, though they are running up debt. But a lot of investment will be required to get the business to the position in the market that counts.”
To get investors back onside, Boone says Pick n Pay is improving its disclosure, and updating investors more frequently. “You try to build trust; as I said from the beginning it’s a multiyear plan.”
In the end, the litmus test will be whether Pick n Pay can perform — and the impending loss for the six months to the end of August won’t help change that narrative.
But Boone points out that, had it not been for load-shedding and the extra expenses to mitigate this, the company would be doing far better. For the past financial year, Pick n Pay would have reported a 7% increase in pretax profit, but for the extra energy costs.
North says the load-shedding crisis hurt Pick n Pay far more than Shoprite, given that its profit margins were lower to begin with. “It dents our profitability, it dents our ability to invest in the short term. That’s what has made us vulnerable to being blown off course temporarily by the severe load-shedding crisis,” he says.
Perhaps Boone’s biggest obstacle is that the market has heard it all before — the constant talk of “new strategies”, of “reviving the brand”, and “putting the customer first”, and yet this has never worked out.
He concedes this point. “I think there’s a level of scepticism in the market. The jury is still out — and that is logical.”
North, however, says it’s wrong to conclude that the share price has tumbled because the strategy is wrong.
“Actually, in our discussions with shareholders and analysts, they believe the strategy is right ... what they worry about is the straight line costs of load-shedding’s impact and disruption, and our ability to continue to deliver that strategy in much more difficult circumstances,” he says.
At least one retail expert doesn’t believe Pick n Pay will fade into obscurity. “They’ve got too many good sites, as a proportion of the total number of sites available in the industry, they are the best placed.”
They’ve also got great people, he adds — even if, sadly, none of them are Ackermans.
Boone, however, says the Ackermans have been resolute that “the number one priority is what is good for Pick n Pay, [and not what] is good for the family.”
In turn, Gareth is backing him to deliver the long-promised turnaround.
“If this comes off, the company will be in a fundamentally different space and we’re all banking on the fact that Pieter’s leadership and the team get it right,” he says.
And if that happens, it’ll take the heat off the family too.
Is Pick n Pay for sale?
Rumours are swirling that Pick n Pay is being scouted out by potential buyers, with an Eswatini-based businessman, in particular, said to be keen.
But company chair Gareth Ackerman, who speaks for its 25% shareholder in the Ackerman family, is clear that Pick n Pay isn’t for sale.
“The business is not on the market; we’re not selling our stake. We have to look at everything because it not only affects us, it affects all shareholders,” he tells the FM.
But he adds the caveat that while the family wants to control the business, “if it was right for Pick n Pay to have another alternative, we would be happy to look at it”.
This wouldn’t be the first time Pick n Pay has attracted foreign interest. In about 2008 the world’s largest retailer, Walmart, approached the company on a “fact-finding mission” and met with the Ackerman family, who said they would have considered relinquishing control had it been “best for the group”.
“My wife (Wendy) and some of our family didn’t want us to sell and I didn’t really want to,” Raymond Ackerman later told Business Times.
Then, in 2011, Dutch retail giant Ahold was close to signing a takeover deal, but abandoned talks at the last minute. Ahold subsidiary Albert Heijn wasn’t willing to pay the price the Ackerman family wanted, after Pick n Pay announced a 25% drop in profit, insiders tell the FM.
Says one: “They were coming to celebrate the acquisition, and they had to put the champagne cork back in the bottle.”
Asked about the Ahold deal, Gareth says: “At the end of the day, both sides decided not to do any deal and we then moved ahead and onto our strategy”.
Today, the question is whether there would still be a buyer for the controlling stake.
Back in 1999, Ackerman said he’d appointed a professional manager in Sean Summers as a “critical transition on the founder’s watch, during a time of financial strength [rather than] crisis”. He pointed out that up to 84% of family businesses fail to make the transition.
Now, Pick n Pay is close to crisis territory. Sasfin’s Alec Abraham doesn’t see many obvious buyers on the horizon — which isn’t helped by the collapse of the great Africa growth story, or that Walmart hasn’t made much of an impression with Massmart.
“Given the outlook for the economy and the company’s rather challenged condition, it’s difficult to see why anyone would want to buy it right now,” Abraham tells the FM.
36One analyst Evan Walker says that, were Pick n Pay to be bought by a new owner, which would look at the chain from a pure profitability perspective, it would be a different business. “But it’s still up against a formidable competitor in the form of Shoprite and Checkers.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.