South African retailer Pick n Pay banks on discount stores to grow

By David Whitehouse
Posted on Wednesday, 21 October 2020 13:39

Shoppers queue outside a Pick n Pay store In Johannesburg during lockdown, March 24, 2020 REUTERS/Siphiwe Sibeko

South African retailer Pick n Pay may double the number of its Boxer stores to 600 within five years to target underserved low and middle-income shoppers, David North, head of strategy and corporate affairs, tells The Africa Report.

“Growth will be in the mid to low value segment,” says North, based in Cape Town. The new stores will be spread throughout South Africa and will target in-person rather than on-line shoppers, he adds. Boxer offers a limited range of discount products, and since August, customers have been able to make bank-account deposits at stores.

African retailers have adjusting strategy to adapt to changes in consumer behaviour prompted by COVID-19. Jumia has been trying to increase the number of cashless transactions completed on its e-commence platform.

But analysts such as Landry Djimpe, managing partner at Innogence Consulting in Paris, have argued that e-commerce is hampered by its cost structure, the size of addressable markets in Africa, and preferences to physically inspect goods before buying.

Bricks and mortar retail still has room to grow. Research from Renaissance Capital in September argues that Pick n Pay is “well placed in the current recessionary environment” with its “defensive food retail offering, robust balance sheet and disciplined capital management.” The Boxer stores, which contributed about 10% of the company’s South African supermarket sales in 2019, are likely to outperform given their discount offering as customers trade down, the note says.

  • Pick n Pay on October 20 reported a 56% decline in headline earnings per share in the six months to the end of August.
  • Still, core retail sales in South Africa, excluding liquor, clothing and tobacco, showed like-for-like growth of 6.4%.
  • About two-thirds of Pick n Pay business is still with middle or high-income customers, and South Africa still has a “shopping centre culture,” North says.
  • But, he adds, the days of GDP growth rates of 5% of more which underpinned increases in high-end shopping are long gone.

Social Grants, Nigeria

COVID-19 has not really altered Pick n Pay’s strategy says North. South Africa’s process of urbanisation means that the formal retail market will keep growing “with or without” the pandemic. The long-term trend, he says, is for customers to visit local convenience stores more often rather than doing one big shop. The key, he adds, is to “treat the aspirant customer with respect.”

Part of doing that is managing footfall during a pandemic.

  • North questions the way that South African social grant payments, which can be collected in retail stores, are bunched at the end of the month.
  • The payment dates have been staggered to an extent, but North says they are still “lumpy and that more can be done to spread them out.
  • This would reduce the risk of COVID-19 spreading as people go to stores to collect them, as well as the dangers of robbery.
  • “There’s no reason why everyone should get the payments at the same time.”

Pick n Pay will open its first store in Nigeria in Lagos in the coming month with local partner A.G. Leventis. If trading goes well, then more stores will follow.

  • North says such small-scale moves, rather than big flagships stores, are the way ahead for foreign expansion.
  • The Lagos store will be “fairly small”, won’t be in a major shopping centre and will target middle-income customers. “We won’t bet the farm on it.”

Bottom Line: Discount stores offer a more reliable path for post-COVID African retail growth than e-commerce.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options