Pick n Pay targets the top-end grocery shopper
Pick n Pay's investment in its "new generation" stores is part of a turnaround strategy initiated by CEO Richard Brasher when he took the reins in 2013, but the jury is still out on whether these stores can help the retailer win market share.
The group has more than 1,850 Pick n Pay and Boxer stores and has modernised some outlets, the most recent being a revamp of its On Nicol flagship store on William Nicol Drive in Sandton, Johannesburg. This concept store features an improved fishmonger, a gourmet meat counter, a wider range of cheeses and wines and an in-store pharmacy with nurses to assist shoppers.
David North, strategy and corporate affairs head at Pick n Pay, said the brand wanted the On Nicol store to appeal to affluent customers, though it would appeal to any customer anywhere in southern Africa.
"It is actually a continuous journey in responding to changing customer needs, changing customer desires, and on that basis we do try and improve all of our stores over time. Every seven to 10 years we think of how the customer has changed, what do they expect in terms of a different experience, a more modern, a more comfortable and more convenient experience? And then we will retouch that store or do a major refurbishment of that store to reflect what it is that customers will want," said North.
The retailer reported this week in its interim results for the period ended September 1 that it had spent R758m on capital improvements, which includes R218m on store expansions and R332.4m on store revamps. It opened 63 new stores while modernising 25 more. North said there were plans to refurbish another 25 stores by the end of its current financial year.
The idea behind concept stores is to keep customers in stores for longer in the hope they will spend more. Pick n Pay's foray into this type of store experience is seen by some commentators as an attempt to take market share from Woolworths, where affluent shoppers traditionally buy their groceries.
Woolworths has over the past few years expanded its grocery range to include personal and home hygiene products and an extensive value offering such as frequent "buy two, get three" specials.
Damon Buss, an equity analyst at Electus Fund Managers, said: "Pick n Pay are trying to win back market share in that top end. They have lost a lot to Woolworths and now you've got Checkers being far more aggressive in the last two to three years.
"Pick n Pay is not the only food retailer with the idea of concept stores; rival Shoprite has transformed some of its stores, dubbed "FreshX" stores, in its Checkers brand.
"I don't think they [Checkers] will really win too many customers from Woolworths," said Buss. "Woolworths' quality levels are far too superior to what Checkers can offer, but Pick n Pay are at risk of losing their top-end customer because their offering has been quite confused over the last two years because they try and serve all tiers of customers within one brand of stores." He said the challenge for Pick n Pay was Woolworths' high-quality offering which would be hard to compete with. However, Casparus Treurnicht, portfolio manager at Gryphon Asset Management, said the new store would put pressure on Woolworths' offering.
"I've been surprised how long Woolies has maintained its food sales momentum. I've expected bigger 'trading down' consumer behaviour in food. We are of the opinion retail will get increasingly competitive - purely due to consumer disposable income that will continue to shrink," said Treurnicht.