Pick n Pay’s price cuts are paying off: it is stealing customers from Shoprite and Checkers
- Pick n Pay has released a trading update that shows relatively strong sales growth in a tough market.
- The retailer is now clearly taking market share from Shoprite and Checkers, one analyst says.
- Its share price jumped 4% on Monday, while other retailers were bleeding.
Pick n Pay’s share price rallied on Monday after new numbers confirmed that the long-suffering retailer is regaining market share.
The company released a trading update for the year to March, which showed comparable sales growth of 7.4% in South Africa.
Shoprite (for the six months to end-December) only managed sales growth in South Africa of 2.5%. While Pick n Pay’s sales include its African numbers, and is for the full year, it is now absolutely clear that the retailer is stealing market share from Shoprite and Checkers, says Gryphon research analyst and portfolio manager Casparus Treurnicht.
After bleeding customers in recent years, Pick n Pay has reduced its labour force by a tenth and streamlined operations. It invested in logistics and new stores, and has launched a successful new Pick n Pay credit card.
It has also offered steep price cuts: In the past year, its prices fell by 0.3% - compared to price hikes of 0.4% on average at Shoprite (which includes Checkers), and South Africa's food inflation of around 3%.
“[Pick n Pay CEO Richard] Brasher’s clearly-defined strategy is finally hitting its stride,” says Treurnicht. The UK businessman and former Tesco CEO was appointed in 2013. Under Brasher, Pick n Pay has cut costs and prices, and focused on expanding its own-brand products, introducing 730 new (or refreshed) Pick n Pay products in the previous year.
It may also have benefited from Shoprite’s own problems – particularly at its Gauteng distribution centre. A strike and the implementation of a new warehouse system caused shortage of products, which may have encouraged shoppers (specifically at Checkers) to go to Pick n Pay instead.
Pick n Pay said on Monday that its headline earnings could be 13% to 23% higher - compared to Shoprite, which posted a half-year headline earnings decline of 24%. Woolworths earnings was down 9%.
While Pick n Pay’s share price rose by 4% on Monday, Shoprite’s share price fell half a percent in a tough day for retailers on the JSE. Woolworths was down 1.7%.
Shoprite and Pick n Pay are trading on roughly the same price earnings (PE) ratio: around 20 times. (A PE indicates how expensive a share is.)
Treurnicht says Pick n Pay is probably the better buy, as he expects the company to continue to gain market share over the next three years as it upgrades more stores.
“But we are not positive about the retail sector in general.”
The consumer market is extremely tough. Higher taxes and interest rates, and the recessionary economy have taken a toll.
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