Tesco eyeing Pick n Pay, Wal-Mart style

Wal-Mart is unlikely to be the last global player to woo a South African food retailer, Natalie Berg of London's Planet Retail said on Friday, 10 August 2012, pointing out SA would be a logical next move for Tesco.

"I'm certain that if Tesco follows Wal-Mart to SA, it is Pick n Pay they will be courting," Berg said. "[Pick n Pay] is the most logical fit given the overlap in key disciplines such as formats, private label and loyalty schemes. I could certainly see Tesco in SA longer-term. I wouldn't expect this to happen for at least another 18 months."

Retailers in developed markets have shown stunted growth as their economies struggle and consumer confidence remains shaky.

Hence the need to look further afield for expansion.

For international companies, SA offers a springboard for expansion into the fast-growing African continent.

Last year, Massmart concluded the sale of a 51% stake to Wal-Mart for US$2.4bn.

The Economist Intelligence Unit predicts that by 2030‚ Africa's top 18 cities could have spending power of 1.3-trillion.

After several years of difficult trading conditions, Pick n Pay's sizeable investments to improve operating efficiencies have primed it for potential takeover activity ahead of other retailers.

A UK-based international retail expert, Simon Mathers, said while Tesco would be interested in Shoprite's consumer base and its knowledge of African consumers, it would have a problem with the "total Shoprite package" and would not be keen to buy it.

"The floundering Pick n Pay on the other hand is the kind of business in size and structure that Tesco could buy and would probably take an interest in, and then make some fairly radical changes quite quickly in order to gain a broader audience," Mathers said on Friday.

However, Pick n Pay spokeswoman Tamra Veley was quick to quash the long-running speculation that the retailer could be targeted by Tesco.

"We are not currently in any negotiations with Tesco. Pick n Pay frequently engages with a wide variety of international retailers on matters of mutual interest. We will continue to look at opportunities for delivering shareholder value," she said.

Tesco is in the process of pumping £1bn into revitalising its UK operations.

In June, Tesco said like-for-like UK sales, excluding both petrol and VAT, declined by 1.5% in the 13 weeks to 26 May.

According to Berg, Tesco's priority was getting their domestic business back on track.

Expansion into a new market such as SA would be both risky and costly for international players, Jon Wright of London-based grocery trade body IGD said.

Source: Business Day