After delivering an impressive set of results, supermarket group Pick ‘n Pay showed its intentions to broaden its horizons within and beyond South Africa’s borders.
Locally, the group aims to grow by penetrating the middle- and lower-income market.
Offshore it had, for the first time, a full financial year to assess its acquisition of 76 Franklins Australia supermarkets in Sydney and New South Wales.
Its Australian interests lost R84-million, but CEO Sean Summers said Franklins did not have to turn a profit for three or four years. The chain expected to halve the loss in the 2003/04 financial year.
Addressing journalists and analysts in Johannesburg, Summers reflected on what he called “a turbulent year” dominated by the “scandal of [food] inflation, in turn characterised by a cycle of blame-shifting”.
The group grew turnover by 39,2 % to R26,2-billion. This yielded an after-tax profit of R453,8-million, up from R400,2-million.
Headline earnings rose 30,3% to R497,7-million. Earnings per share were 102c, falling short of a market consensus forecast of 106c, and the group declared a dividend of 69c, a 33,3% increase.
An analyst, who declined to be identified, said Pick ‘n Pay’s management team was a source of strength. “They have an unrelenting focus on the top line,” he said, referring to the group’s revenue growth.
Defending Pick ‘n Pay’s record on food pricing, Summers said the group had reduced its margins and planned to reduce them further.
Volume growth and aggressive marketing would then lead to a turnover increase that hopefully offset the lower price.
This financial year, he said, the group’s net margin fell from 3,3% to 2,9% of sales. “I want to make retail an unpleasant place for my competition,” he said.
The top line will be relatively squeezed in the coming financial year in the face of rapidly falling food inflation. From a peak of more than 22% last year, figures released this week by Statistics South Africa showed that food inflation fell from 14,2% in February to 12,4% in March. Pick ‘n Pay spent R50-million on food subsidies for meat, maize and other basic items.
A key slice of growth has come from Score. The middle-income convenience store opened 21 outlets during the year and relocated eight. Score was also introduced in the Western Cape, with five new stores in areas such as the Cape Flats and Camps Bay. These use point-of-sale scanning devices, and R40-million will be spent introducing the technology nationally.
Score’s entry into the townships was met with hostility, with local spaza owners and businessmen voicing fears that they faced obliteration.
Summers suggested that working with civil organisations and not “entering arrogantly with money” had overcome this. He said that the development of stores also benefited communities through the employment of local labour and, in some instances, having land ownership reside with locals.
Pick ‘n Pay also spent R185-million on the purchase of 37 Boxer stores, a chain that services mainly rural KwaZulu-Natal, Eastern Cape and Mpumalanga. The acquisition gives the group a multi-class customer base.
Summers said he would soon travel to a conference of 1 500 retail CEOs in Spain, where he planned to show other delegates a video with clips from a posh Camps Bay store opening, and an elderly woman shopping in an Ulundi store that sold tongue roots and cows’ heads.
The group may also grow its presence in the pharmaceutical retail market this year through its separate HealthPharm franchise, which currently makes a negligible contribution to the bottom line.
Current legislation and regulation prevents non-pharmacists from entering the pharmacy business. Summers said Pick ‘n Pay would review its options when Health Minister Manto Tshabalala-Msimang announced changes to the legislation in May. The minister may lift the prohibition.
In a thinly veiled reference to New Clicks, owners of Clicks, Summers said: “I know a group that is staking its life on pharmacy.”
He said Pick ‘n Pay would go into ventures cautiously and would not rush to spend its R1-billion cash pile.
In the coming financial year it would establish 29 new Pick ‘n Pay stores, 40 Score outlets, five Boardmans and six Boxers in South Africa, and four Franklins in Australia. The group currently owns 542 stores.