PnP reports growth under new strategy

FIFI PETERS: Let’s get into those Pick n Pay results. The group [came out] with its first-half numbers today, reporting double-digit turnover growth of 11.5% to R51.3 billion in the 28 weeks to August, also saying that profit margins held up well in the period, while profit after tax leapt over 52.7% to R453 million. We have David North, the chief business transformation officer at Pick n Pay, for more on the numbers.

David, thanks so much for your time. Reflecting on the numbers first, [there was] quite a strong increase in revenue, up in the double digits, and also quite a strong leap in profits this time around. What would you say was the biggest driver of the bottom line, and do you expect this growth to continue in the year ahead?

DAVID NORTH: Well, we think it was an encouraging performance in quite difficult external conditions. So what we showed was very good sales growth in our Boxer limited-range discount business, good growth in clothing as well. And we’ve been doing a lot of work in the Pick n Pay part of our business.

As you’ll know, we’ve reorganised Pick n Pay into the Pick n Pay brand and the Pick n Pay QualiSave brand, [having] converted a small number of stores so far to what we call the new ‘customer value proposition’, and those have grown very well. So we’re very pleased with the progress we’re making on our strategy.

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In terms of looking to the rest of the year – because obviously this is only the first half – we are saying that it is going to be tough in the second half of the year for reasons that everybody will understand, to do with high levels of inflation and disruption from load shedding, etc. So we have said to stakeholders that that they should factor that into the second half.

FIFI PETERS: Just looking at the group’s strategy this time around – to divide your stores into three prongs, as it were, the Pick n Pay, the QualiSave and the Boxer [brands] that you mentioned, in order to cater for the different income groups in South Africa – can you talk about how that strategy is working so far? And perhaps also just give us a bit of colour on the buying patterns and the state of the consumer across the different brands.

DAVID NORTH: Well, the consumer across all brands, in fact across the whole country, is finding this a very tough time, obviously.

Looking to the fact that inflation for many people is rising ahead of increases in wages – and we very, very much understand that, and that is built into our strategy – what we’ve done in the Pick n Pay part of the business is to reorganise Pick n Pay, [which] appeals to middle-income and higher-income customers.

And then Pick n Pay QualiSave, which we launched in August, appeals to customers who essentially are looking for Pick n Pay quality and exceptional value and exceptional promotions, and also buying into commodity products, whether that is maize, sugar or oil or whatever – [there is] a much more prominent focus on those in the Pick n Pay QualiSave stores, and a focus on price.

And then the third prong is Boxer, which we’re very proud of in terms of being the fastest-growing food and grocery retailer, we believe, in sub-Saharan Africa.

That focuses on customers who are looking for unbeatable value – price-sensitive customers who are also looking for exceptional service [and] a very, very strong private label. In other words, own-brand products or what we call ‘confined label’ products – in other words, products that you will only see in Boxer – and a very, very strong high-value fresh meat offer.

So that’s how we differentiate across the market.

Read: How Pick n Pay wants to win

FIFI PETERS: But the strong growth that you’re seeing in Boxer right now, could it also be a function of some of your more well-to-do or higher-income [consumers] buying down, given that things are so tough, or are these new customers, in your view?

DAVID NORTH: It will be a bit of both, to be honest. Actually the Boxer team has been very, very focused on serving its customer for a number of years, and this is the first time that we’ve separately disclosed sales growth in Boxer – 27.2% across the Boxer business, and 14.2% of that like-for-like growth. So very, very strong growth.

A lot of that is about new customers. It is about taking share from some of our competitors.

Now, I think you are absolutely right, Fifi, to say that some customers will be, to use the technical jargon, ‘down trading’; in other words, looking to get better value by buying, for example, more private-label products rather than branded products. And that is actually a focus of what we’re doing, whether that is in Boxer or in Pick n Pay.

FIFI PETERS: I went shopping for a few things on Sunday. It was my brother’s birthday. I was surprised at the few things that were in my trolley, and how much they all cost. That is obviously speaking to inflation; we are expecting the latest numbers to come out later this week on what consumer price inflation is doing right now. While we have seen inflation coming down in some parts of the economy like transport, just given what the fuel price has done – it has come back – we are seeing other parts of inflation remaining sticky, like food.

And so I’d like to understand what inflation at Pick n Pay is looking like right now, food inflation at Pick n Pay, and how much of it you are able to pass on to your consumers in this environment.

DAVID NORTH: We actually published today our internal selling-price inflation for the first six months. That takes us to the end of August, and that was 7.2%. We’re pleased to say that … was below CPI food [inflation], which was 8.2% for the six months. And indeed, as you said in your question, it was increasing over the period and was in fact 11.3% CPI food [inflation] at the end of the period.

So we’ve come in below inflation. We know that that is important for customers, because they are struggling at the moment.

We manage to keep our prices down by doing two things, really.

First of all, we have a programme called Project Future, which is about modernising our business, making sure that we operate in a more efficient way. We are trying to save R750 million, and we’ve promised that that will be given back to customers in lower prices. We’re on track for the first six months of that programme.

And then, secondly, we’ve been doing what are called ‘strategic buy-ins’. So where we see commodity products – like sugar or like oils – increasing in price in the market, we buy them before those increases, and then give the benefit of the lower prices to customers over the period.

FIFI PETERS: Just lastly, David, we are still looking at the possibility of [the] strike [continuing] at Transnet, although there have been some positive developments with the majority union there, but in the almost two weeks that the strike has been under way, has Pick n Pay been affected by it in any way?

DAVID NORTH: To be honest, it hasn’t had a huge impact on us. We have a very, very well-developed centralised distribution system. We have our own distribution centres that deliver to our stores.

So, to some extent, by having your own distribution system, you can anticipate and smooth out disruption over time.

We also actually sell 95% of products that come from within South Africa. So that also insulates us as a business from disruption at the ports, part of the Transnet disputes.

So I’m pleased to say at the moment that availability in our stores is very good and we’re confident that it will remain very good.

FIFI PETERS: David, we’ll leave it there. That’s good to know. Thanks so much for your time. David North is the chief business transformation officer at Pick n Pay.