Strategic focus

The strategic focus of the business is to:

  • Grow sales in line with or ahead of the market by providing great value, service and innovation for customers: Focus here is on the core South African business; developing a strong multi-platform and multi-channel retail business also including online sales and standalone clothing and liquor stores, growing Boxer into becoming a national limited-range discount format and growing sales outside South Africa on a planned and prudent basis to deliver current and future growth opportunities.
  • Restore underlying profit margin to an historically sustainable level: Focus here is on improving the efficiency of the business in all areas, including by completing the centralisation of supply chain operations, increasing productivity in stores and ensuring that support office functions are delivered to benchmark levels of effectiveness and efficiency.

The business devised a strategic long-term recovery plan in 2014, recognising that a return to sustainable long-term growth could not be achieved overnight.

The three stages of our strategic plan

The end of the 2015 financial year marked the substantial completion of Stage 1 of the turnaround plan. Pick n Pay was a significantly more stable business than it had been at the end of 2013, having improved both its gross profit and net profit margins and strengthened the balance sheet with more cash and less debt.

  • Strict control over capital and operating spend
  • Improved working capital management
  • A clear plan on centralisation
  • A leaner and more efficient store operating model
  • The closure of unprofitable stores and the commencement of a strong opening and refurbishment programme
  • A strengthened senior management team
  • Customer innovation, including the introduction of the Brand Match programme

At the beginning of the 2016 financial year, the business was well positioned for Stage 2 of the long-term recovery plan – changing the trajectory of Pick n Pay.

Stage 2 is organised around seven business acceleration pillars. These pillars represent the seven material growth opportunities that can substantively affect the Group’s ability to create value over the short, medium and long term. The pillars provide the senior management team with clear priorities, objectives and lines of accountability, and all are underpinned by our commitment to doing good in the communities in which we operate.

Business acceleration pillars

The opportunity to create value


Better for customers Continued innovation, better availability, improved fresh produce, and private label and investment in price and promotions

The key to the successful turnaround of Pick n Pay lies in a strong and consistent customer offer which is able to cement Pick n Pay as the supermarket of choice for all South Africans. The strong financial result in 2016 was underpinned by improved turnover growth, including positive like-for-like volume growth for the first time in many years, demonstrating the real progress we have made in being better for customers. We have improved the quality of our stores, our product range, our availability and our service.

2016
What we said we would do
2016
What we accomplished
2017
Focus areas for next year
Better on-shelf availability
  • Improved on-shelf availability in company-owned stores, from 92.6% last year to 96.0% this year.
  • Better on-shelf availability

    we will harness the benefits of increased centralisation to deliver every product, every day to our stores, with direct to shelf replenishment.

  • Sharper prices and promotions

    we will innovate on price and promotion, and fight against price increases.

  • Stronger Smart Shopper

    we will look for new ways to provide our customers with meaningful savings and great partnerships.

  • Improved fresh produce offer

    customers are shopping more frequently for fresh and healthy produce and we will strengthen our offer to meet their needs.

  • Expanded private label

    we will give our customers more choice, quality and exceptional value, while providing smaller suppliers with a national market.

  • Improved customer service

    with a specific focus on our fresh departments and on providing our customers with an efficient and courteous experience at our tills.
Sharper prices and promotions
  • Selling price inflation kept to just 3.1%.
  • Successful promotions over the year, including our 48th birthday promotion and a fun and engaging Stikeez campaign.
  • Doubled the size of Brand Match giving Pick n Pay customers real confidence that they do not need to shop around for lower prices.
  • More savings than ever before under our Smart Shopper loyalty programme, with 7.2 million personalised vouchers redeemed under our “Just for You” campaign.
Invest in fresh
  • An enhanced fresh and perishable offering, including the introduction of more pre-prepared convenience meals to meet increasing demand for fresh convenience.
Expand private label
  • 250 new private label products, with the relaunch of a further 650 products with newly designed packaging.
Category reviews
  • Completed all category reviews and implemented detailed planograms to enhance and standardise the on-shelf display of products.
Customer service
  • We introduced new service managers into our new stores with a specific focus on fresh departments and frontline tills.
  • New tills in our new and refurbished stores have resulted in a more efficient and pleasant checkout experience.
Material risks
How we are mitigating these risks

Stock availability – non-delivery from suppliers or breakdowns in our own internal procurement and distribution processes that could result in empty shelves for customers

Closer engagement with all suppliers, and strengthened distribution capability – including a fully centralised and automated forecast and replenishment system.

Incorrect range – we don’t stock the items our customers need or want

Smart Shopper loyalty data has informed the in-depth category reviews performed by our procurement team.

An improved automated forecast and replenishment system allows us to respond quickly to what customers want and don’t want.

Uncompetitive pricing – we charge too much

Brand Match tells us how competitive our pricing is.

Food safety – unsafe food which could cause harm to our customers

All suppliers are subject to an audit of their food safety standards by a third-party auditor. Non-compliance results in termination of supply agreements until compliance is restored.

All stores undergo stringent food safety audits on a regular basis.

Reliance on systems – any breakdown in technology which may impact our ability to process transactions at the checkout

Investment in outstanding information technology systems, with ongoing support and maintenance, including contingency plans to restore systems quickly and effectively in the event of a break-down.

A flexible and winning estate Strong new space and refurbishment programme, leveraging an improved operating model

Pick n Pay has an extensive retail presence in South Africa, and delivered on a strong growth plan in 2016, leveraging off the greater format flexibility and operational efficiencies developed over the past two years. New stores added 4.4% to turnover growth in 2016, a considerable improvement against the 2.5% delivered in the previous year. There remain many communities across the country where the business is underrepresented, particularly outside the larger urban centres. The Group is focused on space growth which can provided sustainable long-term returns and believes that there remains great opportunity for Pick n Pay to extend its reach without impacting existing stores, including through smaller stores which focus on the growing demand for convenience. The Group launched its first Next Generation stores during the year. These stores integrate and accelerate the progress delivered by Pick n Pay over the past three years, offering our customers a substantially improved shopping environment, with lower operating costs. Please click here for more information on our Next Generation stores.

2016
What we said we would do
2016
What we accomplished
2017
Focus areas for next year
Accelerate our opening programme
  • Opened 175 new stores across all formats.
  • We brought Pick n Pay and Boxer to 28 new communities in South Africa, including Emoyeni in the North West, Hoopstad in the Free State, Sedgefield in the Eastern Cape and Sebokeng in Gauteng.
  • Open more profitable stores

    harness the benefits of our lower cost operating model in order to open stores which generate sustainable long-term returns for the business.

  • Increase the reach of our brands

    we will focus on areas where we are underrepresented and where we believe the community can benefit from the Pick n Pay and Boxer brands.

  • Grow our convenience offer

    we will meet the demand our customers have shown for smaller, more convenient, neighbourhood stores by growing our Local and Express formats.

  • Open more franchise stores

    our franchisees are valuable business partners and we will continue to build on what we believe is the leading franchise model in South Africa.

  • Improve the quality of our existing estate

    through targeted refurbishments that add real value to customers and deliver improved turnover growth and return on investment.

  • Increased investment in our online business

    after the success of the online picking warehouse in the Western Cape, the Group will invest in a similar solution in the Gauteng region of South Africa.

  • Improve the profitability of hypermarkets

    improving the performance of the hypermarket division remains a key priority for the Group. We will focus on optimising the use of space, finding alternative uses for freed-up space, including through the introduction of bulk sales.
Grow our convenience offer
  • We added 12 new Pick n Pay Local stores and 34 new Pick n Pay Express stores over the year, bringing the total number of our smaller, neighbourhood supermarkets to 117.
Open more franchise stores
  • Over one-third of new stores opened were franchise stores, and we saw an encouraging increase in issues to franchisees out of the Pick n Pay supply chain.
Double the number of refurbishments
  • Refurbished 40 stores over the course of the year (2015: 20), with half of these reflecting our new Next Generation blueprint.
Accelerate growth of our online business
  • Turnover from Pick n Pay Online grew 38% over the year, underpinned by a stronger range and a substantial improvement in product availability, particularly in the Western Cape, which benefited from the dedicated picking warehouse established at our Brackenfell Hypermarket in April 2015.
Material risks
How we are mitigating these risks

Competition for sites – we miss out on the best locations for new stores

We maintain regular contact and engagement with all developers and landlords. Our lower cost operating model now enables us to open in more locations in the future.

Insufficient investment returns – we open or refurbish stores that do not deliver sustainable returns

Our store opening programme has been prudent, favouring only sites where we are certain of satisfactory returns.

We have stringent control over capital spend.

Loss of existing or potential new franchisees – franchise opportunities lost to competing retailers

Regular engagement with franchisees and review of our franchise model to ensure value creation for all.

Efficient and effective operations Unlock savings in operating costs and improve customer service

The Group’s turnaround strategy is both customer-led and cost-driven. It remains a strategic imperative that the Group continues to remove unnecessary cost from the business and improve its operational efficiency and productivity. A well-run, cost-effective store unlocks value for further investment in the customer offer and allows us to serve our customers more effectively. Our specialist retail office, established in the 2015 financial year, is driving an efficient and effective operating model across all store formats, through the introduction of new standard operating procedures. We are starting to demonstrate, particularly through our Next Generation stores and our smaller convenience formats, that we can successfully operate a more efficient store on a leaner cost base.

2016
What we said we would do
2016
What we accomplished
2017
Focus areas for next year
Less costs, more efficiency
  • Kept the growth in total trading expenses to 8.1%, below the growth in turnover of 8.2%, notwithstanding double-digit increases in electricity, utilities and security costs.
  • Growth in like-for-like employee costs restricted to 4.7%, notwithstanding an average wage rate increase ahead of consumer price inflation and an additional R63.3 million first-time costs associated with the Group’s executive share plan. Excluding these costs, like-for-like labour costs were up just 3.7% on last year, with substantial savings in hours worked.
  • Improved working capital management led to stronger cash balances over the period, the repayment of a further R250.0 million of long-term debt and a 5.9% reduction in net finance charges paid.
  • Less costs/more efficiency

    we will continue to improve the efficiency of our business through greater centralisation of supply, the roll out of improved in-store operating procedures, the simplification of processes and the effective use of systems.

  • Improved backdoor productivity

    the ongoing centralisation of supply means more deliveries from our central distribution centre and fewer direct deliveries from suppliers. This makes the system more efficient and reduces administration on the backdoor and enables us to shift our focus and our resources to the front of the store.

  • Improved stock replenishment

    increased productivity at the backdoor will lead to improved product flow and a quicker and more effective in-store replenishment system.

  • Stronger working capital management

    a strong focus on optimising inventory days in the business will allow the Group to repay a further R400.0 million of structured finance this year, and increase its capital invested in new stores and refurbishments.
Improve backdoor productivity
  • Our new Next Generation stores have achieved a much higher ratio of trading space to back-up areas, compared with existing stores.
Improve product flow and replenishment
  • The implementation of detailed planograms for all product categories have standardised the on-shelf display of merchandise and new “gap scan” technology is facilitating quick and efficient stock replenishment.
Sharper execution on sales floor
  • Streamlined and simplified processes in store, rolled out by our Retail Office, allow staff to focus their efforts on the sales floor.
Improve frontline
  • Introduced more efficient frontline technology in our new store.
Material risks
How we are mitigating these risks

Business continuity – disruption to trade as a result of loss or damage to assets, supply chain capability or stores

We have a detailed enterprise-wide risk management programme in place and it is reviewed annually.

Continued inefficiency – we fail to remove costs from the business

The Group’s specialist Retail Office drives efficient and effective processes across all store formats.

Interrupted electricity supply – in the case of further load-shedding by Eskom, South Africa’s national electricity supplier

All of our stores have generators and are able to trade through load-shedding. Our distribution centres incorporate environmentally friendly systems and processes and our new stores are 40% more energy efficient than those opened just five years ago, putting less pressure on the grid.

Significant reliance on information technology – which could disrupt the business in the event of a material system failure

Pick n Pay Information Services division has implemented a formal disaster recovery strategy for all critical systems. Systems interruption and recovery plans are tested and updated on an ongoing basis.

Every product, every day Centralise supply chain, with every product delivered every day to stores

The Group is making strong progress on developing an efficient and fully centralised procurement and distribution channel. This is significantly improving our in-store availability in order to drive more cost savings and efficiency across the business. We are now more than half way along the journey, increasing our level of centralised supply from 46% to 56% over the year and delivering every product, every day out of distribution centres, to stores across the country, on a short order lead time.

2016
What we said we would do
2016
What we accomplished
2017
Focus areas for next year
More suppliers centralised
  • We increased the level of centralisation to 56%, up from 46% in the previous year, with an additional 241 suppliers taken through our centralised supply chain channel.
  • More suppliers centralised

    we will centralise supply, whenever it is more cost effective and efficient than direct-to-store deliveries.

  • Increased productivity

    we will improve the pick rates in our two main distribution facilities, Philippi and Longmeadow, and improve strike rates to stores.

  • Focus on fresh supply chain

    we will continue to improve the distribution of fresh and perishable goods, with a particular focus on maintaining the cold chain and increasing product shelf life.

  • Fewer deliveries, less kilometres travelled

    with increased centralisation we benefit from a reduced number of direct-to-store deliveries and we will engage with our transport providers to optimise the efficiency of our distribution logistics, including route efficiency.

  • New distribution centre capability

    we will open our new fresh distribution centre in the Western Cape in September 2016, and are exploring opportunities to build our grocery and fresh capability in KwaZulu-Natal and the Eastern Cape.
Higher distribution centre productivity
  • Pick n Pay distribution centres increased the volume distributed to stores by 33% on last year.
  • Good reductions in the cost of case delivered in both groceries and perishables.
  • Boxer in the Western Cape supplied by the Pick n Pay Philippi distribution centre.
Fewer, more efficient deliveries
  • Fewer direct-to-store deliveries, with every product every day distributed out of our Distribution Centres.
Focus on fresh supply chain and new distribution centre capacity
  • We commenced with the construction of a fresh distribution centre at our Philippi Distribution Centre in the Western Cape.
Material risks
How we are mitigating these risks

Loss of major suppliers or product ranges – impacting our ability to serve customers

Increased level of constructive engagement with all major suppliers.

Increased level of central supply – including the use of an automated forecast and replenishment system.

Development of smaller suppliers specifically through the growth of our private label range and our various enterprise development initiatives.

Material damage to or loss of a distribution centre – as a result of natural or other disasters and the subsequent impact on product availability in stores

Comprehensive facilities risk management programme aimed at securing distribution centres and related assets in the event of a natural or other disaster.

An ineffective cold chain – and the impact on the quality of fresh produce

Our focus on fresh is leading to an improvement in shelf life of fresh and perishable product.

A winning team The right skills and the right team throughout the organisation

The Group has an ambition to build the most skilled and talented retail business in South Africa, and in all the African countries in which it operates. In order to do so, we need to be the employer of choice for anyone looking to build a career in the retail industry. We attract staff by providing competitive pay and benefits, access to skills training and development, career advancement and recognition for a job well done.

2016
What we said we would do
2016
What we accomplished
2017
Focus areas for next year
Ensure core skills training
  • Increased investment in skills development and training over the year, with 46 000 training courses reaching 40% of our staff.
  • 1 200 support office staff went “back to the shop floor” for three days this year, refreshing their understanding of store operations and customer service.
  • More jobs

    Pick n Pay will open more stores next year and in so doing create more jobs.

  • More training

    we will provide training in customer service, food hygiene, butchery, bakery, logistics, finance and many others areas of the business.

  • Focus on customer service

    to ensure that we give our customers consistently good service in our stores.

  • Diverse workforce

    we will continue to build a diverse workforce that mirrors the customers and communities that we serve across the broad spectrum of South African society and the other countries that we operate in. This will be a focus in all areas including new appointments, promotions and skills training.
Focus on customer service
  • New management structures in Next Generation stores are aimed at improving customer service and the quality and availability of fresh produce. These structures will be rolled out across all our stores over time.
Performance management
  • The performance management system introduced for senior managers last year has been extended to junior managers, to ensure staff are recognised and rewarded for making a positive difference to customers.
Better communication
  • Enhanced “Shelf Talk”, the Group’s monthly staff magazine.
  • Our Retail Office is communicating standards of excellence in all in-store processes and procedures across our stores – and measuring and reporting back on the impact thereof.
Diverse workforce
  • Our commitment to building a diverse workforce was recognised by South Africa’s Department of Labour at its Excellence in Employment Equity Awards, where Pick n Pay was recognised as the overall private sector winner for transformation in the workplace.
Create 20 jobs per day, or 5 000 jobs per year, by 2020
  • We created 4 500 new jobs this year through our store opening programme, making good progress against our 2020 target.
Material risks
How we are mitigating these risks

Staff retention – we fail to either attract or retain the right staff

In line with our remuneration policy we offer competitive remuneration and a strong focus on career advancement, training and incentivisation.

Insufficient skills – across all employee demographics that disadvantage the business in any way

Strong commitment to upskilling our employees.

Increasing cost of labour – without a commensurate increase in return

Our labour time and attendance schedule optimises staff numbers in stores.

Labour strike – labour unrest that affects the operation of our business

We are committed to maintaining open and constructive relationships with our labour unions and putting in place processes that enable us to proactively manage critical issues.

Boxer –
a national brand A national brand securing value leadership

Our Boxer business has delivered good growth over the last year, notwithstanding the difficult economic conditions facing the lower income and rural communities of South Africa and Swaziland. We are confident of the strong growth opportunities open to this valued brand and with the opening of our first store in the Western Cape this year, Boxer is now truly a national brand, and we are on the way to building Boxer into an impactful presence in the retail market of southern Africa.

2016
What we said we would do
2016
What we accomplished
2017
Focus areas for next year
Sharper prices and promotions
  • Solid turnover growth in an exceedingly competitive environment and under tough economic conditions.
  • Tight management of overhead costs allowed for investment into the customer offer at a time when customers needed all the support they can get.
  • Sharper prices and promotions

    low prices are critical to our Boxer customers and we will continue to do everything possible to bring value and support to poorer communities.

  • Accelerated space growth

    we will open more stores next year, including building on our presence in the Western Cape.

  • Accelerated refurbishment programme

    Boxer will spend an increased capital budget next year on refreshing its estate, including the refurbishment of some of its stores to its Next Generation format.

  • Improved distribution centre capability

    the Group will increase the volume of centralised product going through its new Cato Ridge distribution centre.

  • Butchery and bakery

    we will expand our range of fresh and convenience, particularly our butchery and bakery offer, to meet increasing demand.

  • More synergies with the Pick n Pay business

    we will continue to support Boxer’s Western Cape stores through Pick n Pay’s Philippi Distribution Centre, and look for further ways in which the scale and infrastructure of Pick n Pay can support the Boxer business. We will unlock cost savings and efficiencies for the Group – including through synergy with Pick n Pay through Boxer’s recent SAP implementation.
Accelerated new space growth
  • Opened 24 new stores across all formats, including three Next Generation supermarkets.
  • Opened our first Boxer store in the Western Cape.
Improved distribution centre capacity
  • Introduction of central distribution with the opening of its first central distribution centre in Cato Ridge, KwaZulu-Natal.
  • The new Boxer store in Khayelitsha, is supplied through the Pick n Pay Philippi distribution centre, in the Western Cape.
Material risks
How we are mitigating these risks

Low price environment – could erode margins to unsustainable levels

Prudent selection of sites with sufficient traffic to ensure the profitability of the low cost operating model.

Operational and administrative support capacity – store operations grow ahead of the capacity of systems and administrative support structures

Leveraging off Group systems and support, including integration with the Group supply chain where appropriate.

Rest of Africa –
second engine of growth A second engine of growth, extending the customer offer to markets outside South Africa

The Group has an established presence in Botswana, Lesotho, Namibia, Swaziland and Zambia and has a 49% investment in our associate, TM Supermarkets, in Zimbabwe. Our foreign operations contributed just over R4.0 billion of segmental revenue this year, notwithstanding difficult trading conditions, heightened competition and political uncertainty in some of the regions in which we trade. We will open our first stores in Ghana in 2017, have announced our intention to take Pick n Pay to Nigeria, and will continue to look for profitable opportunities to grow our footprint outside South Africa in countries which offer political stability, economic growth, ease of business and the prospect of strategic scale.

2016
What we said we would do
2016
What we accomplished
2017
Focus areas for next year
Improve fresh offer in all markets
  • Improved the quality and breadth of our fresh range in our operations outside South Africa, contributing to stronger trade in the regions, particularly in the second half of the year.
  • Improve fresh offer in all markets

    through a strong local range and closer engagement with suppliers.

  • More efficient operations

    we will take our efficiency drive to all operations.

  • More stores in the rest of Africa

    focusing on communities where we are not yet represented.

  • First store in Ghana

    we will continue to develop our operations in Ghana with the view of opening our first store in calendar year 2017.

  • Developing our business in Nigeria

    we will cement our partnership with AG Leventis and begin the implementation of our business plan to open stores in the region over the next few years.
More efficient operations
  • Segmental profits – up 19.6% on last year.
  • Solid result from TM Supermarkets – with profits up more than 150% in constant currency terms due in part to increased management support from Pick n Pay.
  • Strong second half performance from Zambia – despite exceedingly tough trading conditions in the region.
  • Stronger franchise performance from our franchise operations specifically in Botswana and Swaziland.
More stores in Zimbabwe and Zambia
  • Opened four stores in Zimbabwe and one store in Zambia this year, with eight new stores in Namibia and one in Botswana.
First store in Ghana
  • After some planning and development delays, we are now on track to open our first stores in Ghana in the 2017 calendar year.
Material risks
How we are mitigating these risks

Economic or political instability

We only enter markets that are stable or where we are able to manage upheaval while trading profitably.

Lack of understanding of local markets

Formal and robust investigation into new markets, including partnerships with local businesses.

 

The recovery and growth of Pick n Pay over the past three years have been positive for all the communities we serve. Our capital spend has injected over R4 billion into our local economies and our store opening programme this year created 4 500 new jobs. We are committed to investing in enterprise development in South Africa and in giving many more small and medium sized businesses access to a national retail platform through our stores – including through the growth of our private label range and through our “Boost your Biz” initiative. We opened stores in new communities for Pick n Pay and Boxer, and we will continue to do so – bringing access to safe, reliable and affordable food in previously underserved communities, while providing new employees with reliable income, healthcare and other benefits. Our values of consumer sovereignty, business efficiency and doing good is good business have endured and continue to guide our progress, and as we grow so will our contribution to society.