Struggling Pick n Pay to cut prices

2013-04-23 16:44

The new chief executive of Pick n Pay said he planned to win back market share by cutting prices, a risky strategy for a retailer already hurt by weak margins.

South Africa's second-largest grocer has lost ground to rivals Shoprite and Spar after failing to invest in its supply chain and open new stores.

Richard Brasher, the former head of Tesco’s UK unit, who joined Pick n Pay as chief executive this year, has inherited a company with sliding profit and the thinnest operating margin in its industry.

Today it reported a 31% drop in full-year earnings.

“It is quite clear that we have, as company, spent too much and to date delivered too little on the investments we made,” Brasher told a results presentation in Cape Town.

“We should be a determined discount operator,” he said, adding the grocer would increase its focus on South Africa's millions of lower-income shoppers.

So far Brasher has had mixed results with his cut-price strategy. The “Big Price Drop” campaign he championed at Tesco was widely seen as a failure, leading some in the British press to dub it the “Big Price Flop”.

Analysts say Pick n Pay is unlikely to deliver lower prices in the near future, given recent costly investments in its distribution network and the roll-out of a customer loyalty programme.

“If Pick n Pay is able to cut costs via eliminating inefficiencies in the background, it will be able to offer products at lower prices to both affluent and low-income customers,” said Tatjana Wolff, an analyst at research firm Planet Retail in Frankfurt.

“However, I doubt this will be realistic within the short term.”

The company said it would spend about R1.8 billion on expanding its business this financial year, mainly through opening new stores.

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