Pick n Pay implement a reshuffle to initiate changes

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The 3 core principles behind Pick n Pay’s restructuring campaign, Consumer Sovereignty, Doing good is good business and Business Efficiency, are simple and straightforward and it follows that they therefore should be easier to affect and maintain. At the heart of the restructuring, as always with Pick n Pay, is the consumer and how their experience and interaction with the brand can be improved.

One the biggest changes is right at the top as the current Exco and Retail Management Board and Group Enterprises Board make way for a Group Executive consisting of accountabilities in Marketing and Sustainability, Buying, Operations, Supply Chain/IS, Franchise, Group Enterprises, Finance, HR, Transformation and Customer.

These are only the latest in a series of changes which began implementation in 2006. CEO Nick Badminton cites the most notable change as the fact that they are now a “more focused operation, having converted the Score stores to Pick n Pay and announced our intention to sell our Franklins operation in Australia.”
In addition, they have made substantial investments towards efficiency and sustainability. In terms of the latter, the retailer announced its intention to commit to zero waste to landfill by 2015 and dramatically reduce carbon emissions.

With regards to the sale of their Franklin’s operation, unfortunately the Australian Competition and Consumer Commission has chosen to oppose the proposed sale, claiming that if successful the deal would negatively affect competition in the retail sector. Furthermore they also cited an expressed interest in acquiring the Franklins chain by “unnamed parties.” Pick n Pay CEO, Mr Gareth Ackerman was surprised and disappointed by the decision and insisted that the sale of Franklin’s to Metcash would be in the best interests of Australian consumers.

Ackerman commended Badminton for his efforts and added that, “his restructuring is an important part of the total strategy of Pick n Pay. It positions us very well for the future.”

With all the changes in the pipeline it looks like Pick n Pay have a bright future however, some the sparkle may be lost if Franklin’s continues to weigh down the domestic giant. The sale would go a long way towards funding the extensive restructuring and without it said plans may have to be put on hold.

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Retail trade sales update

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Retail trade sales rose by 4.6% in August 2010 compared with the same period last year, according to data released by StatsSA on Wednesday. The growth, although positive, is in stark contrast to many predictions. Yet, it was not completely unexpected, "the slowdown I think is more than what one would have anticipated, obviously part of the slowdown is the fact that it's post the World Cup, and there is no doubt that the World Cup did boost sales from May," said Kevin Lings, Chief Economist at Stanlib, to Reuters. This easing of sales has been anticipated for several weeks in large part due to the deflation of the post World Cup sales bubble.
In other data released by Stats SA, it was seen that retail sales grew by 6.7 percent in the three months to August, compared with the same period a year ago, also at constant prices.

In the manufacturing sector the atmosphere is equally glum as factory output only rose by 5.3%, a much steeper decline than anticipated when compared with the same period last year. During the month of August production fell 3.6%, a large part of the dip being attributed to the strike in the automotive sector.

Pick n Pay are having a tough week as they juggle local and foreign situations. In Australia the outlook is still uncertain with regards to the proposed sale of their Australian based Franklins business to Metcash. On Monday, Pick n Pay provided an update of their dealings down under which included an alternative exit strategy. The latter was partly due to the complications the South African retailer was having with the Australian Competition and Consumer Commission (ACCC). “The alternative exit strategy is the sale of the Franklins stores and other strategic assets individually or in groups via a tender process.” On the domestic front they’re facing some 27000 employees who are preparing to go on an extended strike after their wage demands were not met.

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Name-calling

For the trade unions, ‘Walmartization’ bears as its identification tag union busting and social dumping. It is evidence of Darwinian theory hard at work. Directed at Woolworths (and, until recently, Pick n Pay), it is also SACCAWU’s battle-cry of the moment.

‘Walmartization’ is a bulky, but ambiguous label. One can add countless charges to the load. For me, the most outstanding flip side to the coin may be encapsulated in a single phrase: getting the best deal. By dint of its market size and power, Pick n Pay is able to drive supplier efficiency and pass the gains to consumers in the form of lower prices. And, in consumer terms, price carries great weight. Unlike the products of employee welfare or social responsibility initiatives, price is visible, tangible and verifiable.

What’s more, the cheapest goods – food and basic everyday necessities – are of the greatest value to the least affluent. Earlier this year, Pick n Pay introduced a subsidy on such items to help consumers counter the side-effects of food inflation, interest rate increases and rising debt. Whether that decision was inspired by altruistic sentiment or capitalist instinct is really beside the point.

Woolworths, which makes no bones about its higher LSM target market, has demonstrated that it is not immovable on price either. Indeed, following the publication of the retailer’s performance for the six months to June, CEO Simon Susman acknowledged that the retailers’ battle for survival had been reduced to a fight on price. And it is the retailer’s size that enabled it to adjust entry level prices accordingly.

It’s heartening to observe the industry players strategise, adapt and problem-solve. It’s a sign that competition is alive and well. And, when one considers that the typical behaviour of a predatory corporation is to cut prices in order to stamp out the competition - only to raise them again later - our ‘home-grown Wal-Marts’ seem to have more in common with relatives higher up the family tree.

New kid on the block

Having tucked its labour dispute into bed last week, Pick n Pay is powering forward and, well…downward. On Tuesday, the retailer unveiled its pilot C-format store - Pick n Pay Daily - at the Worldwear Centre in Johannesburg.

The convenience store is all about easy reach and time-saving. With its limited product offering and its emphasis on ready-prepared meals, fresh produce and grab-and-go drinks, the C-store is a product of the global retailer’s keeping pace with increasingly time-governed consumers for whom choice has become secondary to accessibility.

The supermarket shrink trend is particularly evident in the US. An article published in The New York Times this month bemoans the hassle that “miles of aisles” presents to the time-starved shopper who knows exactly what he wants as he enters the store. The figures abbreviate the story. For the first time in 20 years, the average grocery store size dipped - by some 38 000 square feet - in 2007, while the average grocery shop now lasts 22 minutes. The pulling power of assortment is clearly on the wane.

The C-store is a ‘smart’ stop whose limited product offering and easy-to-park-and-shop features enable the consumer to get what he needs when he needs it. And, according to research conducted by Pick n Pay, it’ll be the obvious shop-stop for the retailer’s core consumers in the higher LSM brackets, for whom several shopping trips a week is already a given.

Growing at approximately 14% pa, the convenience store format is the fastest growing segment in the retail market, but it’s also a risky time to downsize. Consumers’ ‘flight to value’ at the bigger store formats, as well as the smaller store’s higher staffing costs per square metre, cannot be ignored. Then again, at an average size of 850m2, and with a carefully balanced fresh food/grocery offering comprising some 6 500 product lines, Pick n Pay Daily may strike the elusively happy medium.

Either way, the newcomer will pose an interesting challenge to Woolworths, which has led the convenience store movement in South Africa and which has recognized the need to increase the size of its smaller franchise stores. Competition is always good news for the consumer and, with the Pick n Pay-BP joint venture to launch in November this year, Pick n Pay will be able to meet its rival at the critical forecourt level too.