Richard Brasher

Our business is stronger than it was a year ago. We are at the foothills, not the summit, of our climb. We have a plan to reach the summit and the determination to succeed.

Chief Executive Officer’s report

Nelson Mandela’s passing has made this a momentous year for South Africa. Never before have I seen a nation – and indeed the entire world community – come together so unconditionally and so powerfully to mourn the death, and celebrate the extraordinary life and legacy, of one individual. It has been a time for personal and collective reflection, and I am pleased that Pick n Pay was able to play its own small part in helping our customers and staff to express their appreciation for Madiba’s life and achievements. Around the country, in large stores and small, customers and staff came together on 15 December 2013 to remember and retell the part that Nelson Mandela played in their lives and the life of the nation, and to support our pledge to donate our profits from the day and more to causes which upheld Madiba’s legacy.

These events underlined for me the hugely important role that trust plays in our lives. I am incredibly fortunate to lead a business which has long held a special place in the hearts of people across South Africa, earned through decades of standing up for what is right for the individual and what is right for society. Trust is hard-earned, but once it has been bestowed it also places an important responsibility on the individual or organisation which benefits from it.

My vision for Pick n Pay is to discharge that responsibility by genuinely being the retailer for every South African. At its most basic level this means providing food and other goods which are safe and nutritious, which are honestly and informatively described, and which suit the needs of different customers with differing lifestyles. It also means growing our business in a way which makes these benefits more accessible to more people, including many people who have not previously enjoyed access – either physical or economic – to the benefits of the modern, safe, commercial food economy. More than this, it means understanding people’s desire for a better life for themselves and their families, and helping to fulfil that desire by providing new or improved products, even better value, and innovation in stores, online and through services.

A year ago I said that I was not content to rest on a vision, and was determined to organise, focus and motivate my team around a clear plan. I was equally determined that this plan should always have the customer at its heart. To be sustainable, our success must be measured in growing sales as well as profit; in increasing customer satisfaction as well as share value.

A year later I am pleased to report that we are making good progress on this plan. We have opened 111 new stores across the country, ranging from Pick n Pay and Boxer stores which serve emerging markets through to our new store at the Waterfront in Cape Town. We have sharpened our promotions, particularly around the key holidays which are such an important part of South African life. We have improved our availability, focusing on those products which matter most to our customers.

We have enhanced our operations, centralising more of our supply chain and collaborating better with our suppliers to achieve greater efficiency, improve logistics management and lower costs. We have simplified processes in stores and have empowered staff through greater accountability.

Each of these steps is helping us deliver a better business performance. Our profits have improved substantively, albeit from a low base. We have narrowed the gap in market share growth compared to our key competitors, and gained market share in some crucial months of the year. Importantly, more customers are buying more products from Pick n Pay, and are telling us that we are enhancing their shopping experience.

We in turn are finding new ways of rewarding the loyalty of our customers, particularly through our smart shopper programme. Almost 8 million smart shopper cards have been issued. The number of customers who regularly use their card is growing steadily in response to our enhanced rewards programme. This in turn strengthens our business because smart shopper customers on average spend 5% more with us than customers outside the programme.

Our franchisees remain crucial partners in our business, exemplifying the Pick n Pay commitment to excellent customer service. I am grateful to each of them for their hard work and entrepreneurship over the past year.

The rest of the African continent remains an exciting second engine of growth for Pick n Pay. Outside South Africa we increased segmental revenue by 27.9% and increased our like-for-like sales by 9.4%. In the course of the year we took clear and decisive action to close our Mauritius and Mozambique franchise operations. In both cases we reached a firm conclusion that the businesses, as they were structured, did not offer us a sound basis for sustainable growth. However, the prospects are strong in the markets in which we continue to operate and further afield. We have experienced good growth in Zambia, and have installed a team on the ground in Nigeria to explore opportunities in that market. I hope to update you positively on this in the future.

Looking more broadly, the retail sector globally is changing perhaps more rapidly than ever before. Businesses which did not foresee powerful new trends, or which have failed to adapt swiftly and sufficiently to trends they did foresee, are struggling. The opportunity for Pick n Pay is to orientate itself decisively and effectively in the face of new developments. I see two trends as the most significant.

First, in Europe and the US, the sales growth of many traditional retailers is increasingly being eroded by online businesses. What was seen as a distant threat a decade ago is now a broad-based reality. This trend remains less powerful in South Africa. But the direction of travel is the same, and will accelerate. Pick n Pay was quick to anticipate the trend and we are enjoying strong growth of around 27% in our online food delivery business. We currently have more than 2 000 deliveries per week, and our service has branched out further during the year in the Western Cape, KwaZulu-Natal and the Free State. I want to see more growth and more depth in this area of the business in the coming years.

Secondly, customers are seeking ever greater value for money. What began as a response to austerity in the global economic downturn has become a full-blown consumer trend – among more-affluent as well as less-affluent customers. South Africa is by no means immune to this trend. Pressure has fallen on consumers in recent times from various directions – the weakness of the rand, higher energy and utility costs, rising interest rates and rising consumer debt. Our customers look to us to help them through more challenging times. I therefore see it as an important strategic priority for Pick n Pay to accelerate progress in every area of our business that can contribute to giving our customers greater value – whether it is how we buy, how we transport goods in our supply chain, how we fill and operate our stores, how we minimise waste or how we provide excellent customer service in ever more efficient ways.

Helping our customers through difficult times is at the heart of our values as a Group – exemplified in our principle that doing good is good business. Throughout my career I have worked in the belief that there is no real compromise to be struck between commerciality and corporate social responsibility. The key to both lies in understanding and respecting people’s immediate priorities and their longer-term aspirations. By building a stronger, more efficient business offering excellent value for money, we help our customers satisfy the immediate needs of their families. And, as a stronger, more efficient business, we can better help our customers fulfil their desire to build a better future for themselves, their families and their communities. I am proud of the leadership that Pick n Pay has shown in recent years – for example in helping new emerging suppliers grow through our collaboration with the Ackerman Pick n Pay Foundation, in leading the way on seafood sustainability and climate change, and in helping countless local organisations which seek support through our stores. I look forward to increasing our impact in these and other areas as we further grow and strengthen our business.

We are approaching this next stage of our plan on the basis of a balanced scorecard comprising five segments: our customer offer, our operations, the organisation of our people, our relationship with the communities we serve, and our financial performance. We have a plan to improve each of these segments, and in turn deliver better returns for our customers, our staff, our shareholders and our broader stakeholders.

Our business is stronger than it was a year ago. Customers and shareholders are experiencing the benefit. I want to express my thanks to all our staff who have worked so hard over the past 12 months to improve our business and the lives of our customers.

But no journey worth making is ever straightforward; no goal worth achieving is a given. Much hard work remains to be done in strengthening our consumer offer, further improving our shopping trip, increasing our efficiency, reducing our costs, and equipping and empowering our team for the task.

I tend to emphasise to my colleagues and to our stakeholders that we are at the foothills, not the summit, of our climb. But we have a plan to reach the summit and the determination to succeed. As always, we can turn to the wise words of Nelson Mandela to express the challenge perfectly:

After climbing a great hill, one only finds that there are many more hills to climb.

Richard Brasher
Chief Executive Officer

Cape Town
14 April 2014