Opinionista Ron Derby 24 October 2019

Brash, Brasher, Brashest: Pick n Pay returns

At the point where Pick n Pay broke with the tradition of finding its best talent from within to lead the Raymond Ackerman-founded grocer more than six years ago, the outlook couldn’t be any worse. Some of its younger rivals bragged to journalists, off the record of course, that the end was near. Turns out, not so much.

Shoprite had muscled in on their turf, Woolworths through its food unit was eating into its dominance in suburbia, while it would be folly of me not to mention, the Durban-based Spar as well. On all fronts, the family-controlled grocer’s place in all our lives was under attack.

As a young boy all those many moons ago, I used to measure how financially well my mother was feeling on any particular weekday depending on what type of grocery bag she was carrying on her walk back from work. The blue stripes spoke to a good week, any other colour spoke to mid-month gloom, which I am certain is the experience of many who grew up in the Nineties. For those of the noughties generation, it’s certainly for the most part been replaced by a Simon Sussman-endorsed packaging of Woolworths, the former CEO and now honorary president of Woolworths responsible for much of the retailers rise in his 10 years at the helm.

In the years leading to Pick n Pay’s decision to move out of the comforts of internal staff appointments with the move to bring in British outsider Richard Brasher as CEO in 2013, the grocer’s one-time chasing pack were now clearly steaming ahead. The move came just six years after Anglo American broke with its well-established similar tradition, largely shaped by the Oppenheimer family by appointing a foreigner, and female to boot, as its chief, in Cynthia Carroll.

In the troubling five years before Brasher, the Christo Wiese-chaired and Whitey Basson-driven Shoprite had seen its shares surge, gaining almost fivefold. Woolworths had seen its stock leap more than fivefold, while Spar’s valuation had more than doubled. In comparison, Pick n Pay’s shares gained a paltry 52% over that time.

It was clear that business couldn’t continue as usual, with investors at that time urging a change of management and zeroing in on a dividend policy that they argued took away funds that should have been reinvested in the business. I recall an interview with Pick n Pay chairman and son of the founder Gareth Ackerman arguing that to change the policy would be to signal panic.

The easier option, I suppose, was bringing in Brasher. Through his experience of running Tesco in the much more competitive climes of the UK, the hope was that he would be able to shake Pick n Pay from its complacency. Now, more than six years after coming in, he has managed to turn around the fortunes of the retailer. This is all the more impressive because the last five years have been some of the most economically depressed in the South African economic history in our democratic age, with the country failing to breach the 2% growth mark for the past four.

Against such a backdrop, he would have enough cover to blame “exogenous” factors for his turnaround project not bearing any fruit. Yet here we are in a week (the week of 20 October) where the grocer just reported a 9.5% rise in first-half earnings, and more important, its gross margins improved by 1%.

Through their numbers, which triggered a more than 10% climb in its stock on the day of the results, it’s clear Pick n Pay is winning back some of its lost market share. A cause no doubt aided by some distribution and IT problems at Shoprite which is now nearing its third year without retailing legend Basson at the helm.

Along with a change in-store formats, with a move towards convenience shopping, pricing has been central in the strategy of clawing back market share. In attempts to entice a struggling South African consumer, in-store inflation coming in at 2.2% compared to 3.8% overall inflation for the country. I thought getting franchise stores in line with head office strategy would prove difficult; I was proved wrong.

It’s rather ironic that Brasher has seemingly been winning a price war, while his time at Tesco ended under a cloud as he was among the executives blamed for following a similar path in that market that didn’t work out well for the store. Brasher stepped down from Britain’s biggest retailer in March 2012 after the company’s first profit warning in 20 years.

Tesco’s poor performance was blamed on a flagship price-cutting campaign. According to sources that spoke to the Financial Times at the time of resignation, Brasher was in favour of deeper cuts. I wonder in his battle to get Pick n Pay back and swinging in the local market, if he just simply dusted off his old plans and adapted them to local conditions. If so, they’ve certainly paid off in a South African market where getting the lowest price is a significant competitive advantage in recent years.

It’s a reputation that will come in more than handy as economic conditions look likely to take a season or two to start really improving. Despite the still gloomy outlook for the SA economy, 63 net new stores were added by Pick n Pay with an investment of R758-million spent on in-store expansions, refurbishments, supply chain capability and infrastructure over the first part of the year. R1.7-billion of spend is planned for the full financial year.

More than six years after joining Pick n Pay, even the hardest to please of market watchers must say that Brasher deserves some plaudits for reinvigorating the now 52-year-old grocer.

When compared to its rivals, Pick n Pay in the Brasher years is a much-improved story – aided in large part by the structural challenges faced by Woolworths and Shoprite. Over the more than six years he has been at the helm, of Pick n Pay’s rivals only Spar has outperformed. Pick n Pay shares have grown 39%, Woolworths has slipped 6.1% and Shoprite has seen its value fall 23%. Spar has seen its stock climb 64%.

While Anglo’s first break with tradition didn’t yield great dividends – with the miner not paying one for the first time since World War II – Cynthia Carroll was replaced by yet another outsider in Australian Mark Cutifani. While one hears of internal candidates now being considered to eventually take the mantle, there’s no denying the DNA of Anglo has changed. It was something that Pick n Pay needed all those years, and maybe it’s a path that its rivals may be one day be forced to consider should they continue to be the “sick” men of the sector. Exogenous factors are no defence. BM

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