Unions target Pick n Pay over Tesco, Wal-Mart

Despite Pick n Pay's insistence that there was no truth to the speculation, the SA Commercial Catering and Allied Workers Union (Saccawu) has called for a national boycott of Pick n Pay and a march to the house of its founder, Raymond Ackerman.

The Congress of SA Trade Unions (Cosatu) said Saccawu had confirmed that the group was in talks with Tesco about "efficiencies" they would expect from Pick n Pay, in the event of a buyout.

Saccawu, meanwhile, has appealed the 16.5 billion rand deal between US giant Wal-Mart and local retailer Massmart. It believes that the deal, which was approved by the Competition Tribunal in May, will pose a threat to local manufacturing and jobs.

Furthermore, Cosatu has proposed the retrenchment by Pick n Pay of 3137 workers was "clearly an attempt to anticipate the arrival of Wal-Mart in SA".

The retailer last month announced it was contemplating the retrenchment within its non-management bargaining unit - a decision made in the face of major problems facing the company in respect of declining profitability and the loss of market share to Shoprite and Woolworths.

According to Absa Investment analyst Chris Gilmour, Pick n Pay's intention to retrench had underlined the seriousness of the situation that the group had found itself in as it tried to play catch-up to rivals after a series of errors made by the group over the past few years.

"A lot of what's happening with Pick n Pay is the culmination of a confluence of strategic errors that opened the door for Massmart - entering Australia, not concentrating on general merchandise in their hypermarkets, not putting in centralised distribution timeously and not keeping ahead of the pack with IT.

"Their cost base is rising far faster than their revenue base. People do tend to be the biggest slice of costs and unfortunately Pick n Pay is in the situation where it has to look at this [retrenchments]. This is obviously something they didn't want to do. They left it to the absolute last moment after they tried everything they possibly could," Gilmour said.

Another analyst noted that there was no link between Pick n Pay's job cuts and Wal-Mart's entry into SA.

"Wal-Mart is not to blame for the cuts, but it is a pressure point. Pick n Pay is definitely on the back foot when it comes to market share and the entry of Wal-Mart will only add competition in the middle-to-upper market," he said.

But it's not all bad news for the retailer; on Thursday the company said it welcomed the Federal Court of Australia's ruling to dismiss an application by the Australian competition regulator, seeking to prevent Sydney-based Metcash from acquiring its Australian operations Franklins.

Dubbed as the "the headache that doesn't want to go away" by another analyst, the long-delayed 1.4 billion rand sale of 80 corporate stores and eight franchise agreements was first announced in July last year.

The Australian Competition and Consumer Commission (ACCC) blocked the acquisition last year, saying that the deal could mean a significant lessening of competition through the removal of Metcash's closest competitor in the New South Wales groceries sector.

However, Justice Arthur Emmett said he was not persuaded that there was a separate market for the wholesale supply to independent supermarket retailers of packaged groceries, as the commission defined in its claim.

Furthermore he said that Pick n Pay had had considerable retail experience outside Australia, but had not been able to operate the Franklins business profitably.

"It is possible that an acquirer with more direct experience in Australia, either in wholesaling or retailing, would be able to operate the Franklins business more successfully than Pick n Pay had been able to," he said.

In November last year, the commission also said there were "other parties" that would not raise the same competition concerns as Metcash that had "expressed strong interest in acquiring the entire Franklins business", but the court rejected this and ordered the commission to pay Pick n Pay and Metcash's legal costs.

It is unclear whether the deal will proceed immediately but when I-Net Bridge/BusinessLIVE spoke to Pick n Pay chairman Gareth Ackerman earlier in the year he indicated that "as soon as that interdict gets lifted the deal can proceed."

The company will use the proceeds from the sale to ramp up their distribution centres.