Pick n Pay sees smaller stores as key to unlocking Africa growth

Pick n Pay sees the potential for expansion in sub-Saharan African countries such as Zambia and Zimbabwe if the Cape Town-based supermarket chain sticks to smaller stores with lower prices.

A cautious approach is required as the grocer explores options for international growth, Chief Executive Officer Richard Brasher said in a phone interview on Tuesday. “Its a long journey,” he said. “No one doubts at the potential - the question is when.”

The CEO is preparing Pick n Pay for the next phase of development after reducing the workforce by 10% last year and cutting prices on shop shelves. That led to a growth in earnings, sales and market share in South Africa in the first half through August 26, even as a “tough economy” creates challenges in its home market.

First-half like-for-like sales growth across Pick n Pay’s six markets outside South Africa was 0.6% on a constant currency basis, compared with 3.8% across the business as a whole, according to a statement. The number of stores in those markets stayed constant at 144, while Pick n Pay opened 47 in South Africa to boost the company-wide total to 1 732.

“There’s a big opportunity in the rest of Africa for things that are smaller, with tighter ranges and more efficient,” Brasher said. “And if we look further afield, whether it's East or West Africa, that is the format opportunity if we are going to accelerate our expansion.”

Pick n Pay shares fell 1.2% to R64.35 as of 15:17 in Johannesburg, extending a decline for the year to 7.5%. That compares with 26% slump at upmarket domestic rival Woolworths and 17% at Shoprite, which dominates the pan-African food market.

Regarding South Africa, which fell into a recession in the second quarter, Pick n Pay “does not expect the economy to change dramatically in the short term,” Brasher said. However, the British former Tesco Plc executive sees potential in proposed government reforms, including a stimulus package plan to reallocate R50 billion ($3.5 billion) of the national budget and set up a new infrastructure fund.

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