Pick n Pay caps six years of hard work with upturn

Posted by News Express | 29 April 2019 | 1,323 times

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Pick n Pay capped a six-year turnaround with its best performance in a decade, allowing it to stand out in a sector otherwise battered by a depressed economy and weak consumer demand.

Under the leadership of former Tesco UK boss Richard Brasher, who joined in 2013, the company has moved to improve distribution, sell more own-brand products and boost customer activity through its Smart Shopper loyalty programme. Investment in its discount chain, Boxer, has also paid off, it said.

Boxer is helping it to make inroads in the lower end of
the market, a segment that  has been traditionally dominated by Shoprite, which has been struggling.

Pick n Pay, SA’s second-largest grocer by market capitalisation, increased profit after tax 20% to R1.64bn in the year to March, and boosted its dividend 22% to R2.31 a share.

In February, Shoprite announced a 24% cut in its interim payout.

Pick n Pay’s share price was down 1.8% on Friday at R69, cutting its gain in 2019 so far to 1.8%, compared with an increase of 1.3% in the food and drug retailers index.

The sector trailed behind the overall market, with the all share index up almost 12%.

Analysts said Pick n Pay has made ground on other competitors that it had previously lagged, including Spar, which was seen to be better at connecting with supporters.

They said Pick n Pay had gained from problems at Shoprite, including a strike that disrupted supply in Gauteng.

From Shoprite to Woolworths in the high end, SA retailers have struggled to navigate an economy that slipped into recession in the first half of 2018, while consumers were hit with a VAT increase and record fuel prices.

A weaker rand, rising oil prices and subdued economic activity in the build-up to the May 8 elections may signal more bad news for SA retailers.

"They were doing a lot of things in a lot of places, and it all came together," said Gryphon analyst and portfolio manager Casparus Treurnicht.

These included the shutting down of 20 underperforming stores to cut costs, while it revamped 103 stores.

"Its stores are much brighter and they are easier to move around in," Treurnicht said.

The results mark a turning point for the group and it "must now show it can compete for customers", said AlphaWealth fund manager Keith McLachlan.

Brasher said although Boxer is aimed at low-income consumers, the economic climate means that it would not be surprising if more middle to higher income consumers start shopping there. The chain has a similar operating model to that of the German retailer Aldo, which offers a small range of products at steep discounts.

Brasher added that the company will aim to focus more on targeting what it offers in the different communities in which it operates.

Conditions outside SA were more challenging, with earnings down 16%, "reflecting difficult economic conditions in Zambia and the one-off impact of currency devaluation in Zimbabwe", Pick n Pay said. (Businessday SA)

Source: News Express

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