Pick n Pay goes from hero to zero

Pick n Pay used to be South Africa’s premier food retailer. However, it has been so poorly mismanaged that it is fighting for survival.

Pick n Pay dates back to the mid-1960s, when Jack Goldin started a small grocery business in Cape Town.

He opened three small but modern supermarkets under the name Pick n Pay, along with a fourth cash-and-carry store called Suburban Provisions.

Raymond Ackerman, who had just been fired as managing director of Checkers after a boardroom dispute, bought the business from Goldin for R620,000 in 1966.

Over the next two decades, Pick n Pay grew rapidly and, as part of its strategy, took on powerful cartels and monopolies.

Ackerman fought the apartheid-era government and corporate boards to discount daily staples like bread, milk, and even petrol.

He also pioneered the hypermarket format in South Africa in 1975, changing how locals shopped by bringing groceries, clothing, and electronics under one roof.

In 2002, under the leadership of Sean Summers, Pick n Pay bought Boxer, a discount brand targeting lower-income and rural markets.

The retailer was flying high, and, with the help of the Boxer acquisition, it doubled its revenue over the next five years.

By 2007, Pick n Pay generated R39.34 billion in annual revenue, slightly higher than Shoprite’s annual revenue of R38.95 billion.

However, after Summers stepped down as chief executive, Pick n Pay’s performance could not keep up with that of Shoprite.

Boxer became the growth driver of the group, and Pick n Pay stores struggled to compete against Checkers and Woolworths Food.

By 2017, Shoprite had grown its revenue to R141 billion. Pick n Pay, despite the good performance from Boxer, only increased to R77.5 billion.

This trend continued over the next decade. Today, Shoprite has a turnover of R253 billion, more than double that of Pick n Pay’s R120 billion.

The rise and fall of Pick n Pay is clearly seen in the share price. Between 2000 and 2016, the share price increased by 667%.

However, over the next ten years, it declined by 70%. That means that shareholders lost R36 billion in value since its peak.

Shoprite, in comparison, increased by 3,287% since 2000. Over the last ten years, its share price rose by 77%.

Pick n Pay is fighting for survival

Pick n Pay’s disastrous performance was laid bare in its audited results for the year that ended 25 February 2024.

The retailer revealed that it was technically insolvent and had breached all its debt covenants. Simply put, it was in serious financial trouble.

Pick n Pay reported a 373% decrease in net profit, dropping from a R1.17 billion profit to a R3.2 billion net loss.

For the first time in history, the retailer had become technically insolvent. Total liabilities exceed total assets by R183 million.

These numbers showed why Pick n Pay replaced its chief executive, Pieter Boone, with the company stalwart, Sean Summers, in September 2023.

To save the company, Summers launched a recapitalisation programme, including a R4 billion rights offer and unbundling Boxer through a separate JSE listing.

The rights offer and the Boxer unbundling were successful, and Pick n Pay raised R12.5 billion to strengthen the balance sheet.

However, many operational challenges remained. Pick n Pay stores continued to make large losses, which ate into the retailer’s cash.

Two months ago, Pick n Pay sold another 11.5% stake in Boxer to raise R4.7 billion to fund its continuing turnaround plan.

The turnaround is taking longer than expected, but Summers remains confident he can return Pick n Pay to profitability.

Summers said that Pick n Pay had made significant progress on multiple aspects of its turnaround plan over the last two years.

“The product offering has been enhanced, execution of in-store retail principles has been improved, and the quality of the store estate has been upgraded,” he said.

Pick n Pay added that a new logistics agreement is set to deliver efficiencies over the coming years.

“These factors have driven improved like-for-like sales growth in Pick n Pay company-owned supermarkets,” it said.

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Shoprite versus Pick n Pay

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Shoprite versus Pick n Pay

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