New-look Pick n Pay on course for faster growth

Pick n Pay, which releases its interim results on Tuesday, aims to open supermarkets in areas where it does not have a presence and where there is sufficient demand for a store.

One route into these areas is converting the majority of Score's trading sites into Pick n Pay Family franchises, which the group aims to sell to black entrepreneurs.

The balance of the Score stores would be taken over by Boxer or ceded outside the group.

Pick n Pay's emerging market division, which was set up to identify and train black franchisees in SA, Botswana and Swaziland, would assist with this conversion.

CE Nick Badminton indicated at the previous results presentation that a lot of restructuring was taking place within the group.

This included significant investments in store refurbishment, rebranding, the development of a new convenience food range and the continued development of an enterprise software system from SAP.

Absa Asset Management Private Clients analyst Christopher Gilmour said Pick n Pay would likely continue to underperform in the short term.

But Gilmour said the “reconstituted Pick n Pay" would be an altogether different proposition in 2010.

“Only then will we be able to contrast and compare properly Pick n Pay and Shoprite, which are two very different retail operations,” he said.

Gilmour said with Pick n Pay's extensive restructuring “it was unlikely that Christmas trading would produce any fireworks”.

“But at least earnings growth will be positive and probably in the low double digits,” he said.

The conversion of Score is expected to take two years and generate R4bn in turnover for the franchises.

Assets worth R1bn, which include prime sites as well as shop fittings, would be transferred to the new owners.

Pick n Pay opened the first two converted stores in December and the programme had continued this year with an intensive opening roll-out beginning in March across Gauteng, Limpopo and Free State. The aim is to open more than 35 stores before the end of the calendar year. Of its 120 Score stores, 80 would be converted into Family stores.

As part of its emerging markets strategy, Pick n Pay opened a hyper store in Maponya mall last year, its first in Soweto.

Pick n Pay reported slightly negative like-for-like growth after allowing for internal inflation of 9.4% in the year to February.

Turnover improved 15.5% from R41,1bn to R47,5bn.

Official data released yesterday showed the Reserve Bank's tighter monetary policy continued to affect consumer spending coupled with high inflation and stricter lending criteria, this was mainly responsible for the fourth successive month of declines in retail sales.

Over the three months to August, retail sales fell 3.8% annually — the biggest fall in at least a decade — following a 3.4% decline in the previous three months. Retail sales dropped 1,7%, compared with the same period last year.

In a statement on Tuesday, the group said it expected headline earnings per share to be 10%-20% higher for the six months to August.

Source: The Bottom Line - Business Day

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