After the Bell: Why is Pick n Pay battling to Shop Rite?

You might well already know this, but I find the story around Pick n Pay and its attempt to recover its former position absolutely fascinating.

I think it’s partly because of some of the characters involved, particularly its former and current CEO, Sean Summers. But it’s also because of the company’s history, and how quickly it grew, how successful it was and how far it’s fallen.

To listen to Summers a few months ago, everything was absolutely on track. They were doing all of the hard things and the results of that would soon be revealed.

Unfortunately, their trading update, published to the JSE after trading closed last night, revealed a very different picture. It shows that the company is now expecting its headline loss per share for the full financial year to increase by more than 20%.

That’s despite the fact that their turnover for the last 22 weeks of the period was up by 1.3% and their like-for-like sales up by 1.7%.

Basically, they just did not do well enough, at a time when they were also still closing some stores. As a result, overall, the numbers are very poor.

There seem to be several things that really count against Pick n Pay.

The first is just pricing. There’s no doubt that our shoppers look for the best promotions and shop around. And we possibly have some of the best shoppers in the world.

Pick n Pay seems very proud that its “internal selling price inflation for the period was 2.7%, well below CPI Food of 4.5% as Pick n Pay continued to offer excellent value to customers”.

That might look good in a SENS statement but it misses the fact that food price inflation is generally higher than CPI at the moment, mainly because appliance inflation tends to be negative (it is probably cheaper to buy an air fryer now than it was two years ago because China has been exporting deflation around the world).

There is also better value elsewhere.

In their last six-month update Shoprite, the owners of Checkers, said their internal selling price inflation averaged 0.7%.

So, no matter what Pick n Pay says, the fact is that Checkers is winning on price.

I’d never thought about it before but Old Mutual’s Gustav Schulenburg pointed out on Monday night that one of the reasons Pick n Pay is finding it difficult to compete is its ownership model.

As he says, Pick n Pay’s stores are a mix of corporate stores (owned by the group itself) and franchises (owned by someone else but supplied by the group).

This means that none of the store owners has the incentive to invest in the kind of delivery service that Shoprite has, because no one branch can do it on its own.

The other big advantage Shoprite has with its structure, where it owns the stores outright, is that it can also afford to invest more in innovation.

There were more reports this week about their “smart trolleys” that they’ve been piloting in two stores in Cape Town. These basically weigh and tally up your products while you’re shopping, so that when you get to the point of paying most of the work has been done.

There is a lot of talk about this technology, but the idea of a “cashierless shop” also has a bad press.

The Economist recently used it as an example of how imperfect technologies still spread, despite their problems.

While I’m sure other outlets are trying similar technology here, Shoprite is currently making so much money, and has so much scale, that it is able to find the time and resources to play around with this kind of new technology.

I’m no expert in this kind of thing but I’m sure some of the lessons learnt during the roll-out of their delivery system, about how to get goods out of a store more quickly, might apply to their smart trolley.

And, of course, the people who might be using the smart trolleys are those teams of shoppers you see in their stores who are packing the bags for the delivery drivers.

Even a saving of a couple of minutes per transaction would add up to a lot more volume over time.

And every time Checkers does something like this it gets more data and perhaps more customers, meaning that it can pull further and further ahead.

But nothing stays the same forever.

Supermarket retail is cutthroat. The sheer number of promotions and the amount spent on advertising are obvious proof of that.

I do think Shoprite is at the point where it will take more than one big mistake to dethrone it. But it could, one day, be vulnerable to a series of missteps.

Just as Pick n Pay is building up momentum.

After all, it happened before. When a young man named Raymond Ackerman took on all before him, and changed shopping for generations of people. DM