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Why Sean Summers might just be able to turn around Pick n Pay

| On the move

By: MoneyWeb

Speak to any major supplier to Pick n Pay or anyone who worked for the retailer during Sean Summers’s first stint as CEO in the early 2000s, and the response is the same. They speak of the man with the utmost respect.

Words like “fearsome”, “formidable”, and “ruthless” are used. More than one agrees that ‘Sean’, as practically everyone calls him, is probably the only person who is able to fix Pick n Pay. One says that “If he can’t fix the business, then its unfixable”. This isn’t a unique opinion.

The first half of its financial year (March to August) was ugly. A nearly R1 billion loss before tax in South Africa. Net debt is R3.8 billion, more than double the amount a year prior. By the end of August, it only had R1 billion undrawn of R5.5 billion in new loan facilities raised.

Boxer is holding its own against Shoprite and USave, and arguably taking market share. The Clothing business continues to thrive. The problem – that which Summers was hired to fix – is its core Pick n Pay business.

Fixing the retailer, which has seemingly been in a perpetual turnaround since Nick Badminton left more than a decade ago, is going to take time. Summers knows this.

Pick n Pay isn’t going to be able to starve its way to profit and, while it arguably had some fat to cut under former CEO Pieter Boone, it simply centralised too much, too fast.

It has had to bring back people who left during its voluntary retrenchment programme.

It also removed junior managers from stores – which might’ve looked great in Excel, but would’ve had a direct impact on store operations, stock availability and service levels.

Lots needs attention. First is the proposition.

Is it going to try to be everything to everyone (whether through the Pick n Pay and QualiSave brands or not)? Or will it focus squarely on the middle market, something the Ackerman family will almost certainly not find palatable?

Linked to this is the perception of the Pick n Pay brand in consumers’ minds and – crucially – the perception of price and value.

Changing perceptions 

Currently, there exists the perception that Checkers is “cheap” and PnP is “expensive”. On some products, this is the case. On others, it’s the reverse. Often, they’re neck and neck. This perception needs changing.

To address this, it needs to build better relationships with its suppliers. Summers had fantastic relationships with suppliers in his first stint leading the retailer.

Obviously, those executives are long gone which is a massive challenge. Summers has the network to be able to phone a chair or director at one of these groups who he does know to get the direct line he needs to the supplier.

‘Former former’ CEO Richard Brasher was instrumental in opening stores in communities where it had never been present before. Some of these openings would’ve been hits. Others misses. Some older stores, too, will be loss-making as communities change with little/no response from the retailer (relocation, change in proposition or closure).

It is understood that Summers will announce the closure of quite a few stores this year, perhaps as many as 30 or 40. This would be around 10% of its 324 corporate-owned supermarkets in SA – a big deal.

But it simply cannot afford to carry stores racking up hundreds of thousands of Rands (or worse, millions of Rands) of losses a month, just to prop up sales.

It needs to figure out what it’s doing with the Hypermarket business, but the fact that Summers has appointed a head for this unit alongside five regional heads suggests that he sees a future for these larger stores.

Boone, when he was in charge, was clear that he didn’t see a path for any expansion of its ‘big box’ retail in the country.

QualiSave conundrum

Summers is aware of the QualiSave conundrum. The plan, under its Ekuseni strategy, began to split Pick n Pay into two businesses: one targeting the upper-income market and another (QualiSave) targeting the middle market.

Based on reported sales, this hasn’t worked. Whether the retailer sticks with this plan or twists, will depend on it figuring out its proposition. Checkers is managing to tackle Woolies head on with Fresh X stores complete with Starbucks, Kauai and so on, while simultaneously trading in the middle income market without ‘splitting’ its brand.

It doesn’t need another brand/sub-brand to achieve this.

Finally, it needs to figure out where its franchise model (and franchisees) fit in. With Summers’s leadership announcements last week, franchisees now fit within the Pick n Pay retail division included under the new regional heads.

“This will mean that the actual trading in franchise will fall under retail, which is where it should be.”

Previously, this division was separate which made little sense. Summers understands the value and power of franchisees – much of the business was arguably built on the back of these independents.

All of this together will get sales growing but this won’t be a quick fix. Summers understands this business better than anyone and the moves, already, will make an impact. There’ll be more to come before he presents his strategy to investors in May.

It will take a year – at least! – to reset and fix the business. And more time to roll out the new plan across the group.

Towards year three the results should, no, will be there. At that stage, the succession planning process will be complete. No coincidence that Summers has signed up for a three-year stint (and will no doubt be handsomely rewarded for his efforts). Best he get on with it.

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