Strategy update

 

OVERVIEW 

The Group’s core focus has been to strengthen its strong South African retail businesses, Pick n Pay and Boxer, while adopting a systematic approach to expanding into adjacent areas, including geographical growth through the African continent.

Pick n Pay has been consistently following this strategy since 2007, which has led us to exit non-performing parts of our portfolio. In 2007, the decision was made to convert the weak Score Supermarkets into Pick n Pay and Boxer stores. In September 2011, the Group’s Australian subsidiary, Franklins, was sold to Sydney-based wholesaler, Metcash Limited.

Each of these decisions has led to substantial value creation and has enabled the Group to focus more intently on Pick n Pay and Boxer.

STRATEGIC CONTEXT

Of the total Group turnover, 92.3% is generated in South Africa through the supermarket businesses of Pick n Pay and Boxer. The remaining 7.7% is generated through the Group’s operations in Namibia, Botswana, Zambia, Mozambique, Mauritius, Swaziland and Lesotho. Additionally Pick n Pay owns a 49% stake in the Zimbabwean supermarket business TM Supermarkets.

Uniquely in the South African market, the Pick n Pay Group has broad appeal across all the nation’s diverse customer groups. The Pick n Pay business is mainly targeted at the middle to upper income customer groups; whereas Boxer serves lower to middle income customers. However, the two businesses frequently trade within the same market and do so with great success.

Pick n Pay, which represents the majority of the Group’s turnover, operates across multiple formats to suit and meet customers’ needs. There are 20 hypermarkets which offer Pick n Pay’s largest range of both food and general merchandise under one roof. There are 456 supermarkets of which 282 are franchised, which provide food and a more selected range of general merchandise. In addition there are 9 Pick n Pay Express stores which, in partnership with BP, provide customers with a convenient top-up alternative to larger stores.

We also retail clothing, liquor and pharmaceuticals with both in-store and stand-alone outlets contributing to the wide range of products and services offered by Pick n Pay.

Throughout each of its formats Pick n Pay aspires to offer the best and most appropriate choice of quality products, sold in world-class stores at great prices, thereby offering industry-leading value for money.

Boxer operates 129 stores across all its formats. Its primary focus is the Boxer Superstore business, with 99 stores providing a low price offer with a clear focus on the basic commodities such as maize, rice, flour and oil. The Boxer business has recently been piloting the Boxer Punch format which, through smaller stores and a more limited range of product, provides a more convenient alternative to the Boxer Superstore. There are now 9 Boxer Punch stores.

In South Africa the Pick n Pay and Boxer operations compete most directly with stores from the Shoprite Group, Spar and Woolworths. With their recent acquisition of Massmart, Walmart has announced its intention to build a large food retailing business. All of these retail chains also compete with the informal sector, which today still comprises about one third of the total food retail market. As the formal food retail market expands its store footprint, offering more convenient shopping at lower prices, the informal sector is coming under increasing pressure. The informal sector is served through the wholesale channel where Massmart is the largest player.

 

PICK N PAY GROUP REFRESHED STRATEGY

Over the past year we have refreshed, without substantively altering our strategy. Our overarching ambition is for the Group to become the “Retailer of choice for all South Africans”. This builds on Pick n Pay and Boxer’s brand strength and strong store portfolio.

To achieve this, the Group has seven strategic priorities summarised in the chart below:

Importantly this refreshed strategy does not represent a major departure from the strategy that has been followed for the past five years, and many of the achievements of recent years are summarised in the chart below:


These seven themes are all geared to ensure that the business can grow sustainably and profitably. There is a balance of growth-driven priorities, focusing on space, customer, franchise and product, and those largely focused on improving efficiency such as replenishment and store operations. The “One Pick n Pay” initiative ties these together to ensure that the business works well as a unified whole.

Strategic priority: Grow selling space ahead of the market

There is substantial competition for retail space both within South Africa and in other African markets. Ensuring that Pick n Pay increases its overall share of trading space over the long term is an important strategic priority. Over the past three years our space growth has lagged that of our competition particularly into the faster growing lower income areas and small stores. This not only directly reduces our market share but also puts pressure on like-for-like sales growth. We will continue to develop store formats and channels that meet customers’ changing needs both in Pick n Pay and Boxer, in South Africa and beyond. Additionally we continue to build a pipeline of new sites, whether greenfield or through acquisition that will ensure we meet our aspirations.

Strategic priority: Build deep customer relationships

The launch of our customer rewards programme Smartshopper gives us a significant opportunity to get to know our customers’ shopping habits and preferences substantially better than we do today. Since its launch in March 2011 the programme has been a great success. After just one year we now have over five million active cardholders, exceeding our initial target by two million. This  enables us not only to know and understand each customer a great deal better, but to communicate with our customers in a different and more engaging manner.

We have direct access to the vast majority of Smartshopper customers by either sms or email, which means that we can send targeted marketing communications directly to them. We can also ask for feedback directly from them. All of this translates into a very valuable two-way dialogue with our customers.

As a result we are designing and executing marketing campaigns which are more relevant to our customers. We are extracting insights from their shopping habits data in order to tailor our product ranges and more accurately serve them. All of this will assist us in growing our sales volumes significantly.