A closer look into Pick n Pay’s strategic business rhythms suggest that the retailing giant is engaged on a serious markdown mission. It is making a concerted effort to capture a larger piece of the low to middle income market share.
This goes to an extent of getting involved at Spaza Shop level. Pick n Pay reports in its financial results for the year ended February that it has launched 8 spaza shops in the past 12 months. These are counted as Pick n Pay’s franchise portfolio.
One statement in Pick n Pay’s latest financial results gives this away. The group notes that: “84% of South African families survive on a household income of less than R20 000 per month.”
Pick n Pay’s main competitor Shoprite realised this a long time ago and that’s how it surpassed Pick n Pay and grew to rule the South African and Africa wide markets. It’s a wisdom that’s eluded many South African corporations for many years. Take Nedbank. It failed to read the signs when the 1994 political transition happened and maintained an elitist focus. It did wake up in the mid 2000’s which may have been too little too late. Look where Nedbank is in relation to Capitec Bank. And perhaps Woolworths has also seen the light.
Serving all communities
In its unfolding phase of reengineering its operations Pick n Pay wants to “serve customers across all communities and income groups.”
Management adds that “we are determined to meet the needs of all our customers, including the most vulnerable in our society. Notwithstanding the financial and other challenges faced, lower LSM (living standard measure) communities are resilient, dynamic and aspirational.”
Pick n Pay’s subsidiary Boxer, which focuses on serving lower- to middle-income customers, is an important part if this mission. Management says it is “particularly encouraged by the performance of its Boxer business, having spent a number of years repositioning Boxer into a lean and agile discount supermarket.
“Focusing on middle and lower-income customers, Boxer has accelerated its turnover growth in a highly contested market. It has continued to win customers in tough times through a compact and well-defined range, highly competitive prices and a compelling meat and fresh produce offer.”
Spaza Shops matter
And the mission is reflected in Pick n Pay’s space growth. Management says “new space growth remains measured and considered, focused on sites which can deliver sustainable long-term returns. Changing customer demographics and needs provide good opportunities to grow sales and extend reach without impacting on existing stores or trading densities.”
Pick n Pay opened 124 net new stores during the financial year ended February (153 additions, 29 closures), adding 3.3% to its total space. New stores contributed 3.1% to turnover growth.
This included 72 new Pick n Pay company-owned stores and 22 Boxer stores across all formats. The group opened 59 franchise stores during the year, including 7 supermarkets, 35 liquor stores, 9 express stores and 8 Spaza Shops.
Management said the franchise model is an effective way for emerging entrepreneurs, serving the emerging markets, to build businesses leveraging the buying, distribution and systems capability of Pick n Pay. A collaborative programme with government to help revitalise township enterprises and contribute to inclusive growth fits well into this mission.
For example, 14 local entrepreneurs have now been mentored by Pick n Pay staff in Soweto, Gugulethu and other areas. The partnership has helped the local shopkeepers to modernise their stores and their offer, benefiting from access to Pick n Pay’s supply chain and product range. They are now bringing a safe, modern and high quality grocery offer to previously under-served customers.
Pick n Pay said it will continue to play a positive role in growing the informal retail market in South Africa, in order to transfer skills and ownership to economically marginalised entrepreneurs.