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What Pick n Pay’s results tell us about retail in sub-Saharan Africa

South African supermarket chain Pick n Pay this week released its financial results for the year ending 26 February 2017. Headline earnings per share rose 18%, while turnover growth of 7% reflects the tough consumer environment in South Africa, Pick n Pay’s largest market. Outside South Africa, the retailer has stores in Botswana, Lesotho, Namibia, Swaziland, Zambia and Zimbabwe .

How we made it in Africa’s Justin Probyn looks at what Pick n Pay’s results and associated commentary tell us about the state of retail in sub-Saharan Africa.

1. Online retail gaining traction

Online retail in South Africa seems to be gaining traction. Pick n Pay’s e-commerce turnover in the Western Cape province grew 30% year-on-year, driven by the success of a dedicated online picking warehouse situated close to Cape Town. As a result of the performance of this warehouse, the group opened a second one outside Johannesburg at the end of 2016.

Despite low profit margins in online retail, the group still views it as a growth engine. “Customers definitely like it, and you definitely have to be in it,” said CEO Richard Brasher. “You can’t ignore the future, so you better be involved in it.”

2. Strained consumers seek value

South African customers across all socio-economic groups are seeking lower prices and better value for their money. The South African economy grew by only 0.3% last year, and the rand came under significant pressure. Consumers had less money for more expensive products.

Last month Pick n Pay announced a R500m (US$38m) investment to lower prices, starting with reductions across 1,300 grocery lines, with a particular focus on fresh meat, fruit and vegetables.

“Customers are more price sensitive and are shopping more frequently for smaller baskets,” said the group’s CFO Bakar Jakoet.

3. Shoppers want convenience

The group currently has 111 Pick n Pay Express stores – double what it had two years ago. The rapid growth of these outlets, in tandem with the rising number of smaller-format Pick n Pay Local stores, suggests consumers want to shop smaller trolley sizes, more frequently and from convenient locations.

The group believes the future of convenience shopping is not only selling snacks, but also fresh foods and produce in small stores that are close to where people live.

4. Nigeria remains on the radar

Nigeria has proved to be a difficult market for some South African retailers. In 2013 Woolworths said it would close its stores in the country, blaming high rental costs, duties and supply chain challenges. Last year fashion chain Truworths also pulled out due to difficult regulations and problems getting money out of the country. Nigeria has been hard hit by the fall in the oil price, with the economy contracting by an estimated 1.75% in 2016. But despite these difficulties, Pick n Pay still sees opportunities in the west African country, with its first Nigerian store expected to open over the next two years.

5. Money to be made in Zimbabwe, despite tough economy

Pick n Pay’s associate in Zimbabwe, TM Supermarkets (TM), delivered strong performance, despite a tough macroeconomic environment, characterised by liquidity constraints, rising unemployment and falling consumer confidence. Its share of TM’s earnings grew 74.7% to R80.2m (about $6.1m), representing growth in local currency terms of 71.8%. TM has 56 stores in Zimbabwe, 16 of which trade under the Pick n Pay banner.

“We use Zimbabwe as a testament to the fact that whatever the headwinds, you can improve a business for customers,” Brasher said.

6. Zambia holds long-term opportunities

In Zambia economic performance was impacted by drought and related water and power outages, as well as a low copper price. This in turn dampened retail activity. However, notwithstanding current economic headwinds the country faces, the group remains positive of its long-term opportunity. Pick n Pay opened six new stores this year as part of its ongoing investment in Zambia, bringing the total up to 17 stores in-country as of February 2017.

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