You got the sense that Sean Summers, who rejoined Pick n Pay only two weeks ago, was rallying the troops in his presentation to investors last week, as the full horror of the retailer’s latest results were laid bare.
He tells the FM: “My news for Pieter [Engelbrecht, Shoprite’s CEO] — you can almost see their offices over there — is that we will be back. I have immense respect for what they have done and we will build back to being the opposition you need to have, not want to have.
“I want to encourage our opposition to keep working from home on [Microsoft] Teams and the like. We’ll be together in the stores and office rebuilding a team and an esprit de corps.”
Them’s fighting words. But such a turnaround is anything but inevitable — and anyway could take as long as 24 months, Summers has warned. You can see why: interim turnover rose 5.4% to R54.1bn, but trading profit plummeted 97.5% to just R31.8m in the 26 weeks to August 27, amounting to a loss of R837.2m. The core Pick n Pay business had hardly any growth at all and reported a R572m loss. And net debt has risen a significant 171% from August last year to R3.8bn.
Shares in the one-time market leader shed more than 12% on the day results were released, meaning Pick n Pay’s market cap at just R13.6bn is now less than 10% that of Shoprite.
Summers, 70, has carved out three years to work at the group and will also put in place a succession plan for the next generation. “I think it would be really, really tragic if Raymond’s legacy disappeared. It’s part of the fabric of this society … and people want their Pick n Pay back,” he says, referring to founder Raymond Ackerman.
While Summers is clear that big steps need to be taken, the details have yet to be formulated. “I’ve got to get in, get under the hood, get stuck in, deal with the basics,” he tells the FM.
There’ve been too many consultants, advisers and fiddlers in the building, so we need to deal with the aftermath of that
— Sean Summers
Still, he says “there’ve been too many consultants, advisers and fiddlers in the building, so we need to deal with the aftermath of that”.
Clearly it is the core Pick n Pay that needs the most attention. Leadership, he says, diverted its emphasis away from stores, people and products to “a myriad other things”.
“It hasn’t been focused on customer delight and surprise, store execution, store delivery, product refurbishment and all the things that keep a business like this at the forefront.”
He plans to sort out merchandising, flagging staff morale, relationships with suppliers and, of course, customers. So, no small task.
Summers says the lack of staff morale is to be expected, given Pick n Pay’s many rounds of cost-cutting and retrenchments. “You can never save your way to prosperity, you can only have a prosperous, thriving company if you maintain the momentum in the business. And that’s Pick n Pay’s problem. When you lose momentum, all sorts of ills start to happen.”
For a start, the much-touted Ekuseni strategy put in place by former CEO Pieter Boone will be reassessed. The group recently split its main South African brand into two, with QualiSave aimed at lower- to middle-income customers and Pick n Pay focused on the middle to top end of the market. These QualiSave stores may now be converted back into Pick n Pay stores or Boxer stores.
Circumstances change; you need to change your business plan. Otherwise you’ll be like Gen Custer, full of principles and full of arrows
— Sean Summers
Still, the exercise resulted in about 160 QualiSave stores being cleaned up with new lighting, floors and ambience. But, says Summers, “circumstances change; you need to change your business plan. Otherwise you’ll be like Gen Custer, full of principles and full of arrows.”
Yet the Ackerman principle of keeping franchisees appears to be safe, for now. Summers argues that franchisees remain key to the business.
There were some standout performers in the results from discount chain Boxer, which grew 16.1%, as well as Pick n Pay Clothing, while online sales were up 76.3%. Boxer’s rollout, however, is being constrained because of a holdup over regulatory and licensing approvals at councils and municipalities.
As for Pick n Pay’s financial position, some now argue that the group needs a rights issue to raise money from shareholders. This, of course, would put even more pressure on its share price.
Gryphon Asset Management portfolio manager Casparus Treurnicht fears the task ahead is a mammoth one. “The whole franchise model is not working and I don’t know if they are willing to address it like they should. There are stores in areas that have never worked, do not work and will not work. And there is something wrong in the culture. They are doing eight deliveries in an area where you should do one, for example. If they cannot get product on the shelves in time and at an efficient cost, there will be no win-win for franchisees.”
His view is that Shoprite is simply too far ahead, given that it did its homework more than a decade ago.
“Pick n Pay is also restructuring year after year,” says Treurnicht.
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