Pick n Pay to Boost Fresh Goods Sales as New Stores Added

Pick n Pay Stores Ltd., South Africa’s second-biggest grocer, plans to increase fresh produce sales and gain market share as it opens about 100 new stores in the next 12 months.

The company is working to regain customers from competitors including Shoprite Holdings Ltd. (SHP), Africa’s largest grocer, and has been trying to cut costs and improve its supply chain amid a downturn in consumer confidence. Net income increased 6 percent to 583.7 million rand ($55.5 million) in the 12 months through March 2, the Cape Town-based company said in a statement today.

Boosting sales of fresh produce is a “significant focus,” Chief Executive Officer Richard Brasher, a former director at Tesco Plc who was hired last year, said in a telephone interview from Cape Town.

“You have to improve your supply chain, improve your supplier base, improve your assortment and make sure you put roots down with growers and farmers so that you can actually support that ambition over time,” he said. “Pick n Pay can and should do a better job in that space.”

South African retailers have been struggling as rising unemployment and a hike in interest rates damps consumer spending. Retail sales growth probably slowed to 3.8 percent in February, compared with 6.8 percent the previous month, according to the median estimate of 14 economists surveyed by Bloomberg.

“Management is doing a fantastic job in a tough retail environment and we are finally seeing results,” BPI Capital Africa analyst Luis Colaco said by phone from Cape Town. Even so, a recovery may already be priced in to the stock, Colaco said. The shares trade at 30.44 times estimated earnings, according to data compiled by Bloomberg.

Narrowed Gap

Pick n Pay shares declined 0.8 percent to 52.49 rand at the close in Johannesburg, after rising as much as 0.9 percent earlier in the day, close to a record high. The stock climbed 17 percent last year, compared with a 12 percent decline on the FTSE/JSE Africa Food & Drug Retailers Index.

After losing about 1 percentage point in market share in each of the last three or four years, the company has narrowed the gap, Brasher said. The difference between Pick n Pay’s growth and the rise of the total market narrowed from 2.5 percent in the previous year to 0.7 percent this year, the company said.

Pick n Pay has cut operating expenses as a percentage of revenue “despite rapidly rising fuel, utility, property and other costs,” Brasher said.

Nigeria Opportunities

The company’s like-for-like sales in Africa outside its home market climbed 9.4 percent. Pick n Pay, which closed its Mauritius and Mozambique franchise operations, saw “good growth” in Zambia and has set up a team to “explore opportunities” in Nigeria.

Woolworths Holdings (WHL) Ltd., the South African food and clothing retailer that has been increasing its fresh produce sales, said in November it would close its three Nigerian stores because of high rental costs, duties and difficulties with its supply chain.

Pick n Pay full-year sales rose 6.5 percent to 63.1 billion rand, while the retailer raised its dividend by 10 percent to 92.3 cents per share.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net John Bowker, David Risser

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