South Africa retailer Pick n Pay to cut $187 million in costs in three years

Workers repair a logo of South African retailer Pick n Pay in Johannesburg

JOHANNESBURG, May 17 (Reuters) – South African grocery and clothing retailer Pick n Pay (PIKJ.J) aims to cut costs by 3 billion rand ($187 million) in the next three years and grow its market share by 3% under a new strategy, CEO Pieter Boone said on Tuesday.

One of the country’s largest retail chains is seeking to improve shareholder returns, which have been dropping in the last 12 months in a highly competitive grocery market dominated by biggest rival Shoprite (SHPJ.J).

The cost savings will be achieved through efficiencies in supply chain and working capital, a slimmer support office, leveraging technology to save costs and simplifying store operations, Group Chief Financial Officer Lerena Olivier said after Pick n Pay reported a rise in annual earnings earlier.

The group is also looking to get more customers to shop at its discount Boxer grocery chains and mid-upmarket Pick n Pay stores in a highly competitive grocery market.

To do that, it will roll out 200 Boxer stores and refine its product ranges at its Pick n Pay chain to better serve the affluent customer and low- to middle-income customer through two different Pick n Pay brands instead of one, Boone told investors.

“We have tried to be everything to everyone and as a consequence we end up losing relevance and differentiation,” Boone said, referring to challenges of serving all customer groups from one brand.

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The retailer is also aiming to tap more online customers through continued investment in its e-commerce business, which will result in eight-fold sales growth by its financial year 2026, he said.

Other initiatives will see Pick n Pay deliver group turnover growth at a compound annual rate of 10%, resulting in market share growth of at least 3% by 2026. It has also pledged to increase its profit before tax margin to above 3% by 2026 from 2% at present and double Boxer sales, he added.

South Africa’s formal food and grocery market is seen growing by 227 billion rand ($14 billion) to 855 billion rand by 2026, with the bulk of the growth coming from the less affluent income market, Boone said.

“Today we have 16% overall market share in the formal market. The opportunity is everywhere but especially in the less affluent part of the market,” he said.

Its growth initiatives will be supported by a 3.5 billion rand capital investment for financial year 2023. Capex will remain around this level in the medium-term, Olivier said.

The group earlier reported headline earnings per share, the main profit measure in South Africa, of 262.59 cents for the year ended Feb. 27, compared with 229.31 cents in the previous comparable period.

Pick n Pay, with a national store footprint of more than 1,900, also announced a commercial agreement with Naspers-owned (NPNJn.J) e-commerce giant Takealot that will enable its customers to buy its groceries and liquor on Takeaalot’s food delivery Mr D app. This will launch in August.

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