Business Maverick

BUSINESS REFLECTION

After the Bell: Sometimes you pick, sometimes you pay

After the Bell: Sometimes you pick, sometimes you pay
(Photo: Waldo Swiegers / Bloomberg via Getty Images)

You have to say, the decision of the Ackerman family to relinquish control of Pick n Pay is a generous one. Legally, there was nothing obliging the family to make this concession. But you also have to say that the company has its back to the wall.

The JSE was rocked on Monday morning by the announcement that the Ackerman family was stepping aside as the controlling shareholder in Pick n Pay as part of a big restructuring of the business. At the moment, the family has a 25% interest, but there is also a control structure that will have to be dismantled. 

The restructuring, I fear, is going to be harsh, as these things always are. The company said it was looking at about 100 stores, which doesn’t sound like much since the company operates more than 2,000 stores in several formats in eight countries. Not all of those will be closed, but some will be changed to the cheaper-format Boxer outlets, which leaves about 30 that might be closed at the end of the day. 

You have to say, the Ackermans’ decision to relinquish control is a generous one. Legally, there was nothing obliging the family to make this concession. But you also have to say that the company has its back to the wall. It’s amazing, but even though Pick n Pay is SA’s third-largest retailer by turnover, its market cap is one-fifth that of Clicks, which sells pills and soap (and okay, kettles and make-up and other stuff).

And in some ways, it’s all very sad. Raymond Ackerman was the doyen of SA retail and he died only recently, late last year. Ackerman famously started Pick n Pay after he was booted out of Greatermans after making a success of Checkers which is now part of the Shoprite group, for making what seem then to be outrageous proposals and asserting things like the desirability of something nobody had heard of, called “malls”. He then put his ideas into practice and in doing so, changed SA forever. An added irony is that Ackerman bought the first four Cape supermarkets that began his odyssey from Jack Goldin who also started the above mentioned Clicks.

It’s amazing how the boot is now on the other foot. SA arguably has too many malls, as can be seen very graphically in the restructuring efforts of one of SA’s largest malls, the Fourways Mall. Other innovations that changed SA retailing, like franchising, are also proving problematic in some cases.  

Recently in conversation with Gareth Ackerman, I asked what had gone wrong. He mentioned several issues, some of which are deeply “inside baseball” retail, like the split between fresh and general merchandise in the stores. He mentioned something else which I suspect might be key. Shoprite’s methodology had one innovation that Pick n Pay overlooked — hub-and-spoke replenishment. This is partly because history unfolded as it did, but also partly because Shoprite’s managers are extremely good retailers. 

The process of replenishing these stores is enormous, and as the quantity and differentiation of the products on the shelves has massively increased, the science of logistics has become the central part of a retail network.

Pick n Pay put a lot of emphasis on replenishing stores on a store-by-store basis, whereas from quite early on, Shoprite developed huge storage areas and operated on that “hub-and-spoke” system. Recently, Pick n Pay adopted that system too, but Ackerman said the consequence was that much of the previous storage areas in the stores were now empty as the replenishment was taking place more efficiently. However, there is still a cost to holding on to that space.

Debt

Some of this is just luck. Government grants to poor South Africans disproportionately aid Shoprite. The change in distribution systems also had the effect of increasing the debt Pick n Pay was carrying, which wasn’t necessarily a problem until interest rates shot up. It has now, I believe, breached some of its debt covenants, and that’s always a downer.  The result is that Pick n Pay had to do a very quick and large rights issue, which meant the Ackerman family’s ability to continue controlling the store was always going to be tough.

But the market responded positively to the changes and you can see why. After the rights issue and breaking out the Boxer stores into their own listing, the remaining Pick n Pay business will be close to debt-free — partly thanks to the Ackerman family following their rights and pumping in an additional R1-billion or so. There should also be enough to do some store refurbishment. 

Ironies abound here. Oddly enough, Ackerman said he met long-time Pick n Pay CEO Sean Summers, who had run the company for 15 years but left a decade ago, at his father’s funeral. He abruptly decided to bring back Summers and the decision was effected that day once it became clear that Summers (70) was willing to take on the job.

Summers’ plan is a consummate turnaround process that only a very experienced retailer would come up with, enumerated as leadership, resetting the store estate, improving the retail offering, optimising the operating model, and leveraging partnerships. I’m glad he knows what all this means — I only have a vague inkling.

Summers brought back other Pick n Pay stalwarts and collectively they are known as “the Dads Army”. But of course, this can’t continue indefinitely, so developing replacements will be part of the group’s challenge over the next few years.

“I believe that in the next year to 18 months, we have to have a whole new group,” Ackerman said. And as it happens, that includes Ackerman himself, although he will remain on the board; a new non-executive chair will be chosen. 

With all this and the exit of the Oppenheimer family from Anglo fairly recently, it seems that the end of family control has become the way of the world. As my podcast colleague, Mark Barnes, points out, this is entirely natural. Corporate control shouldn’t necessarily be akin to the royal prerogative. Professional managers are the new accepted corporate rulers, and by and large, it works. 

Yet, call me old-fashioned, but the creation of great entrepreneurs is also crucial for innovation, and allowing them the space and time to act is sometimes equally vital. Even though I can see the benefits, I think the departure of the Ackerman legacy as controlling shareholder of Pick n Pay is kinda sad. Still, what must be, must be. DM

  • Article corrected to reflect that its not Mall of Africa that is restructuring but the Fourways Mall.
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Comments - Please in order to comment.

  • Daniel Cohen says:

    Thank you, Tim. Always relevant and entertaining comment.

  • Geoff Coles says:

    Dad had such business skills and empathy with customer needs. Successors just were not good enough.

  • Ian Gwilt says:

    A a discerning shopper my split has changed significantly in the last couple of years.
    80% of my shop used to be P+P with the balance Woolies and Spar.
    Now my P+P shop is about 30% , limited to specials and some cuts of meat
    My change has gone to Checkers and Woolies.
    P+P stopped stocking, My dogs favourite food. They stopped selling my favourite sparkling water as a misguided statement, then brought it back at a huge increase.
    They redeveloped the store and its layout defies logic.
    Woolies have improved their meat quality and their veggies are the freshest, if you avoid the blatant gouging of some prices it is reasonable.
    Checkers have well laid out modern shops with good stock variety , also need to check their pricing as their adverts are very misleading, their claims of huge discounts are often based on exaggerated base prices.
    Good look for the revival, but once you lose a customer it is not easy to get them back.

  • Rae Earl says:

    What we’ve found to be the biggest reason people in our circle and suburb’s transition from Pick ‘n Pay to Checkers/Shoprite/Woolies/Spar, has been the awful staff attitude at P&P stores. Across their retail chain, the till staff are disinterested, arrogant, and often downright rude. We enjoy interacting with staff at pay-points in any retailer. Being met by blank stares and little or no reaction to the odd humorous remark or greeting at a till is enough to keep us away from that environment.

    • Tim Gross says:

      This wasn’t the case a few years ago. In fact, PnP store staff were always better paid than Shoprite’s. Sad to see the end of a South African retail dynasty, but change is for the better sometimes. That Gareth Ackerman had to reunite with Sean Summers at his dad’s funeral and convince him to come back just shows how dire the situation’s become.

  • Mike Nussey says:

    Very sad indeed. An iconic South African brand, but nowhere near where the business once was. I’m unsure why Sean Summers would want to be so close to the fire. Wish him and Dad’s army well in their efforts to resurrect the brand.

  • MT Wessels says:

    Pick & Pay is a goner. The other retailers have been taking market share while P&P kept dining out on old man Ackerman’s blue-rinse reputation. The slide will continue, they’re too far behind the curve – even more so now that the crown jewel (Boxer) has been hived off. “Dad’s Army” sounds cute but is completely wrong; Summers & the bullets are old school and out of touch with where the market has moved to and what the young customer expects. The customer they understand has died or emigrated. They’ve been stuck in a ’80’s rut forever, employing managers that will toe teh family line instead of energetic and creative entrepreneurs, racing to the bottom in terms of product quality, staff attitude in-store, and management attitude in treating their suppliers. Most suppliers sup with a long spoon, tired of being bullied, so going with the motions and quietly stocking up the competition. Summers & co are not equipped to change what they themselves created, this is a last desperate pull of a dry teat. Dead cat bounce (family should have saved their R1bn), then penny stock, then liquidation. Bye-bye.

  • Agf Agf says:

    The only words spoken to one by the checkout staff is: “Plestik?”

  • Boxer Manager says:

    PnP operations structure needs to be corrected. They need to have regional managers visiting their stores to increase store standards. More people on the ground visiting stores in different regions checking everything not sitting in head office. Invest in stafff training and skills development as well as customer service. Higher ups needs to listen to staff and management as to what customers are looking for. Make staff and management responsible and accountable. They need to invest in pricing to get back customers.

    Bring in performing managers from Boxer Superstores to manage poor performing stores maybe with an incentive plan.
    They need to get back to basics with excellent pricing.

    • Patterson Alan John says:

      As a past supermarket manager, I agree completely.
      Closeness to the customer is critical to know what they like, want and dislike.

      As Richard Branson said, “If my Virgin people are totally committed to looking after our customers and our customers keep coming back, the investors have nothing to worry about.”

    • Chris Brand says:

      Agree fully. Day after Raymond passed away, the PnP at Plattekloof turned form being a very good PnP to being one in chaos. I tried to analyze why and my summary is:
      1] Branch Manager changed and in discussion with the new manager, I found her to be very cordial and really disinterested; and
      2] Staff complement almost doubled but most are just hanging around some shelves and not doing anything; and
      3] Whole store was re-arranged with a “funny logic” (wokeness possibly involved) – this took longer than 8 days to complete the haphazard way where not all cold storage are at the same place and a cafe in the middle of the store; and
      4] to gain access to (now clicks) pharmacy, one has to traverse the whole length of PnP on the inside to get to it – before/after purchases completed; and
      5] At tills, about maximum of 10 of 50 are manned at any time, by staff very sorry for themselves that they ever had to work for a salary and not knowing the slogan “The customer comes first” since their sloppiness/attitude (taught at home/school/PnP training); and
      6] Trends tracking of favorite stock have disappeared and frequently “out of stock; and
      7] Ironically a Memorial Picture of Raymond Ackerman at entrance as if to draw customers.
      In short, the Plattekloof branch now has my approval rating falling from 80% to 30%, while the Richmond Corner branch has improved from 70% to 90%, mainly because of:
      1] Much better shop layout; and
      2] VERY KNOWLEAGEABLE STAFF (Branch Manager training/oversight).

  • Sue McLaggan says:

    Me too. You’ve helped me solidify my decision.

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