Pick n Pay will avoid building “huge stores”, as consumers are becoming less inclined to do large weekly purchases, says CEO Richard Brasher.
Excluding its Zimbabwean operations, the retailer opened 124 net new stores in the year to February 25, adding 3.3% to its total space.
None of these new stores was hypermarkets, while the number of Pick n Pay supermarkets rose just less than 3% and the number of “local” stores surged 23%, albeit off a low base.
Clothing and liquor store numbers also rose meaningfully. Brasher said total store growth of about 3% was “sustainable”. “As soon as you start trying to chase more space, you’ve got to be careful that you don’t end up with stores that are too big — I am a fan of smaller stores.
“I think some of my competitors think we’re only interested in opening convenience stores, but I’m interested in opening stores that are the right size for customers – which, by and large, is a bit smaller and closer to where people live.”
This was because traffic was becoming a bigger issue and consumers were starting to shop more frequently while buying fewer goods each time.
End of huge stores
“So having huge stores is probably not the order of the day, especially as rent rates and occupancy costs are escalating at around 6%,” Brasher said. While it was possible to grow store space by 5% or 6% a year, that would not be in the best interests of the company over the long term, he said.
“We can get more out of our existing estate by giving it new life, so we refit 80 stores last year and we closed 29 as we continued to refresh and modernise … and add new planes to the fleet while retiring some of the older ones.”
The group’s capital expenditure in the year to February 25 was R1.6bn, and it would likely spend between R1.6bn and R2bn annually over coming years, Brasher said.
UK retailer Waitrose, a competitor of Brasher’s alma mater Tesco, said in a study in November that statistics showed the weekly supermarket visit was becoming outdated.
People were shopping for groceries only when required, rather than stocking up, which meant trolleys were being downsized. In contrast to five years ago, two-thirds of Britons bought groceries more than once a day. This trend was particularly prevalent among young people, Waitrose said.
Pick n Pay said on Thursday it grew sales faster than its competitors over the festive season, with sales in the three months to February 25 up 8%.
That was partly thanks to new store openings and refurbishments, Brasher said.
The strong fourth-quarter result lifted Pick n Pay’s shares by 8.9% on Thursday and another 2.2% on Friday.
Meanwhile, Debt Rescue CEO Neil Roets said Pick n Pay’s announcement that it had approved R1bn in credit since launching its store card in September 2017 was “bad news for consumers”, many of whom were in “dire” circumstances as they were already burdened with debt.
“At the time that Pick n Pay made the announcement to open store accounts for consumers, we made the point that food was the one commodity that cash-strapped consumers should try and pay cash for,” Roets said.
Pick n Pay’s store account was launched in partnership with RCS, a subsidiary of French bank BNP Paribas.
The retailer said on Thursday the product was “the most affordable form of credit in the market”, with no interest payments required for the first 55 days and the “lowest” fees.
The 56,000 store account holders had used less than R200m of the total R1bn credit facility, Pick n Pay said.