Pick n Pay readies for battle

The group has been outmanoeuvred on the marketing front. Shoprite has established itself in consumers' minds as the cheapest of the food retailers. "Marketing has been left to the buyers and is very supplier-driven," says Rohland. "That must change."

A veteran of the business, she will also be responsible for growing the "e-tailing" offering, much as Shoprite has done in recent years. This is new and is part of Pick n Pay's basket of what it calls value-added services. They include insurance products, money transfers, social grant payouts, Lotto at every till and online travel offerings.

A lot of work is being done, but the recent interim results to August suggest investors may have to wait a little longer for the payoff.

While turnover increased 6% to R25,2 billion, after-tax profit fell from R460m to R428m and headline earnings per share fell 7,2% to 90,2c. The trading margin continued its downward slide, falling from 3,5% in 2007 to 2,9%.

A first for dividends

And, notably, dividends fell by 6,9% - the first fall since 1995. This reflects the pressure on cash flow.

Though stagnant sales growth is an immediate problem, other issues need to be addressed. Pick n Pay's protracted union negotiations, with the possibility of retrenchments, are one headache for CEO Nick Badminton. The unions, though, will find themselves up against more demanding management.

The efforts to sell Franklins in Australia are another headache.

"It means management will be forced to maintain its inward focus for the near to medium term. While they do that their competitors will power ahead," says Nedcor Securities analyst Syd Vianello. "But if they don't they will be eaten alive."

Badminton is sanguine. "There is a new discipline in this business," he says. It stretches from cash management to staff training.

Though some analysts have recommended the share as a sell, Absa Asset Management analyst Chris Gilmour remains positive: "Pick n Pay is still on track for recovery."

Source: Financial Mail