He said that the rate of food inflation had dropped sharply in SA in the past year, from almost 14% in April last year to just 0.6% 12 months later.
While this had put severe pressure on the margins of all grocery chains, Pick n Pay was well positioned to gain market share after implementing a highly capital-intensive restructuring in the past four years aimed at improving supply-chain efficiency.
This included upgrading, expanding and rebranding hundreds of stores, the centralisation of distribution to cut costs, and the implementation of a comprehensive SAP information technology system, which Badminton described as "the single biggest task Pick n Pay has ever performed".
Management has come under pressure from shareholders during the past year as its financial performance lagged that of competitors such as Shoprite, which has seen its shares gain more than 50% in that period while Pick n Pay's added less than 40%.
The company's corporate governance has been placed under the spotlight, with the pyramid control structure, independence of its directors and the remuneration policy all coming in for severe criticism.
Chairman Gareth Ackerman, who took over from his father, Raymond, in a nonexecutive capacity in March, stood firm on most of these issues at the meeting despite persistent questioning from shareholder activists.
He was adamant the group's unpopular pyramid structure, which gives the Ackerman family control of the operating company via a family trust and Pick n Pay Holdings (Pikwik), would remain in place. Family control had allowed management to "take the long view" when devising strategy, considering plans for expansion and assessing the risks of future investment, he said.
Acknowledging that Pick n Pay had "slipped behind in many areas", Ackerman said the considerable cost of the group restructuring should be seen in this context, as well as the magnitude of the change faced by domestic retailers, including the challenging economic environment and the "very nature of our competition".
US retailer Wal-Mart and other international groups had been "very active in their engagement with local retailers, including Pick n Pay" in recent months, and their arrival in SA would have profound implications for the retail landscape, he said.
"It is precisely because of the magnitude of these changes that we have invested so much effort in our restructuring strategy over the past few years. It was clear that these changes needed to be made, and made urgently."
Not all of the shareholders at the meeting were satisfied with the group's response to the criticism of its corporate governance, although all resolutions - including those requiring 75% shareholder support - passed easily.
Shareholder Theo Botha said he felt he had come up against "a brick wall" on the issues where Pick n Pay did not comply with King 3 corporate governance guidelines, especially the pyramid structure, chairman's remuneration, the practice of issuing discounted share options to management, and the lack of truly independent directors.
Source: Business Day
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