What took Pick n Pay so long?

One really needs to walk around Pick n Pay’s very recently revamped Lonehill store to understand how it intends to compete with rivals Checkers and Woolworths for the wallets of more affluent consumers.

The outlet, in a suburb just adjacent to Fourways in Johannesburg, has the ‘obligatory’ coffee station as you enter. The fresh produce area has been dramatically neatened and amplified, with a new-look bakery offering all manner of custom breads, an overhauled butchery and, just generally a far better ‘fresh’ proposition. There is no pap and wors counter in sight (if there is one, it is certainly well-disguised).

While far smaller than the Pick n Pay on Nicol or in Constantia – what former Moneyweb editor-at-large David Carte termed “Taj Mahal” stores – the store has been brought right up to date and stands almost toe-to-toe with brand new Checkers Fresh X or Woolworths Market stores. It offers a great experience, messy queues notwithstanding (these are a hallmark of both Pick n Pay and Checkers).

Read: Why Shoprite group has Pick n Pay on the back foot

Barely 10km from the Lonehill store is its Diepsloot one, which serves an entirely different market and most certainly will never have a fresh coffee station at the entrance.

The nearest outlet, Cedar Square, will (according to landlord Accelerate Property Fund) soon be upgraded to a “blue spec store supported by a new 10-year lease”. Both the Lonehill and the Cedar Square stores will compete directly with Woolworths Food in each centre.

The fundamental question is not why Pick n Pay took so long to deliver a store that its ‘more affluent’ customers would choose to shop at …

Rather, it is why the country’s second-largest supermarket retailer took so long to realise that its core brand – Pick n Pay – was serving two entirely different markets.

Checkers challenges Woolies head-on in convenience space
Checkers vs Woolies over the last decade
Checkers FreshX to compete with Woolworths

One might, quite reasonably, ask why former CEO Richard Brasher never quite cottoned on to this solution for an almost existential problem. Perhaps not right now, but sooner or later being in the ‘muddling middle’ would become a big problem for Pick n Pay.

Brasher did at least identify a few years ago that the real opportunity in South Africa’s formal grocery market was in the ‘less affluent’ segment.

The middle market has the least growth potential of the three!

No wonder Pick n Pay had to figure out a plan …

Source: Pick n Pay Project Ekuseni analyst presentation

At the core of new CEO Pieter Boone’s ‘Ekuseni: A New Dawn’ strategy, announced in May, is the plan to ‘split’ Pick n Pay into two brands: one for the high-end market, and another that serves the middle market (the Boxer brand is doing exceedingly well at the lower end of the market).

It is still unclear exactly which market the core brand will be retained for, but it very clearly has articulated that something called ‘Pick n Pay Project Red’ will occupy the space between the upmarket stores and Boxer – carrying around half the number of products of the former, but not quite as pile-em-high and sell-em-cheap cash-and-carry style as Boxer.

Pick n Pay

Source: Pick n Pay Project Ekuseni analyst presentation

Project Red

Project Red stores are premised on the six following propositions: fruit and veg market, bakery, fresh and frozen meat, cold drinks, ‘bulk and promotional’ and ‘commodity power’. This seems easy enough, but there are two not-insubstantial hurdles to overcome.

PnP: Aggressive Boxer expansion and new store format for ‘inbetweeners’
Pick n Pay ups on-demand grocery delivery ante with Takealot deal
Pick n Pay ups fresh produce offering with first in-store vertical farms

First, it needs to deal with this transition quickly. It is not clear, from the May presentation at least, exactly how this will all unfold. It needs to establish the distinction between upper market Pick n Pay stores and, perhaps, ‘PnP’ stores (Project Red ones) in the minds of shoppers.

There cannot be any confusion about exactly what one could expect at which store.

This is the looming issue facing Checkers right now. It has sold a proposition of fresh cheese and Starbucks and fancy wine and fresh honey/chocolate to customers, which is fine. But one need only walk into one of the older, less-popular Checkers stores in its estate to see something that represents a lot more of a Shoprite.

Even in more affluent areas, there are Checkers stores that are in desperate need of a revamp. The Nicolway store (Bryanston, Johannesburg) is nothing special.

Yet it could potentially compete with the now-somewhat-aged Woolies upstairs. Same, too, with the other two Bryanston stores. These are no different from what one might expect from a neighbourhood Pick n Pay (or a basic Woolies or Spar).

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Akani’s R1.1bn acquisition of Nicolway Shopping Centre

The second issue Pick n Pay has to deal with is its sprawling estate. It has to somehow tailor this proposition – ‘fancy’ Pick n Pay and ‘basic’ Pick n Pay – to customers across the Hypermarket, Supermarket, and, crucially, franchise store base.

With Hypermarkets, it’s not clear how exactly this pans out. The newly-overhauled Northgate Hyper is no match for the one in Steeledale, for example (was it ever?). These are serving two entirely different economic segments.

Supermarkets are the easiest to deal with.

Possibly most difficult is the franchise estate, over which head office has rather limited leverage. How does it ‘incentivise’ the owner of a Pick n Pay store in an affluent area to upgrade their store at a cost of millions? Again, this goes to the core of who the store is trading for (the same issue being faced by Checkers and Spar, to some extent).

It’s not the easiest to solve but is arguably far easier than still trying to sell a single proposition – and promotional pricing – to affluent, middle market and lower income households.

How does one sell a R49.99 pack of washing powder to all three?

Or will Pick n Pay slowly morph into something else entirely?

Source: moneyweb.co.za