Pick n Pay’s franchise horror show
Pick n Pay, however, sees green shoots for its own supermarkets.
![Pick n Pay franchise sales](https://media.citizen.co.za/wp-content/uploads/2024/08/Pick-n-Pay.jpg)
Image: iStock
Pick n Pay has revealed the extent of the struggles in its franchise supermarket business, with sales down by 0.8% in the 21 weeks ending 21 July. It describes this performance as “disappointing”.
However, it needs to be seen in the context of internal selling price inflation of 4.7%, which means volumes through its franchise supermarkets were down by 5.5% versus last year over the March to July period.
The struggles across its franchisee base compare with sales growth of 3.6% across its company-owned supermarkets (and hypermarkets), excluding standalone clothing outlets.
It says “improved retail disciplines” has meant a strong turnaround from -0.5% in the second half of its previous financial year to the 3.6% level for the bulk of the first half of FY25. It adds: “The return of Pick n Pay Hypermarkets to positive sales growth after a sustained period of underperformance is particularly noteworthy.”
Unboxing Boxer
The granularity of the group’s reporting has improved in recent years, with the disclosure of Boxer’s revenue (and sales growth) separately from the 2023 financial year under former CEO Pieter Boone.
With the (forced) decision to list Boxer separately later this year, its margins and profitability are now public.
The separate disclosure of the franchise unit’s performance is not surprising as CEO Sean Summers and the group have to show that the turnaround of its supermarket business is underway. Each of these units is facing its own dynamics and trajectories.
ALSO READ: Pick n Pay technically insolvent, but new strategic plan will turn the ship
The group highlights that “company-owned supermarkets have rarely outperformed franchise supermarkets over recent years”.
“While [it] views this trend reversal as further confirmation of early progress in the turnaround of company-owned supermarkets, revitalising the performance of the franchise stores is a key current priority.”
Its franchise unit is a sizeable business, with roughly 250 supermarkets across South Africa, versus the roughly 300 company-owned supermarkets.
Store closures
Since the end of February, it has shut four corporate stores and 12 franchise ones. (It shut 11 franchise stores in the last financial year.)
This includes the 10 supermarkets in the East Rand operated by former franchisee John A Baladakis, whose business was liquidated by the retailer.
Pick n Pay says it was owed R224 million and a liquidation order was granted by the high court at the end of February.
According to court documents, the Baladakis stores (which included another nine liquor outlets) have annual sales of R1.5 billion.
ALSO READ: Ackerman family steps back from majority control of Pick n Pay
In a twist, the Shoprite Group signed leases to open seven Checkers stores and one Shoprite at eight of these sites in April. The properties are owned by entities associated with Baladakis.
The sales decline across Pick n Pay’s franchise supermarket base is on a so-called “like-for-like” basis, which excludes the Baladakis stores.
New model for franchisees
Last year, it implemented an “interim” model for franchisees which improved their commercial terms.
The core element is a higher purchasing rebate to franchisees to encourage them to increase their purchases through the group’s supply chain “in exchange for a higher franchisee royalty”.
It says work is underway on a future franchise model and is looking to implement this by the middle of calendar 2025.
There are broader questions about the impact of on-demand grocery delivery services Checkers Sixty60 and Pick n Pay’s own asap! service on the franchise business. Sixty60 continues to dominate the space, which is making it tough for Woolworths and Pick n Pay to compete.
Moneyweb understands the economics of franchisees enabling the centralised delivery service at their stores are tough.
As part of the turnaround of the Pick n Pay business, the group announced in May that it would shut one in 10 of its corporate supermarkets over the next two years.
A further approximately 70 Pick n Pay stores will be converted to the mass-market Boxer brand (in areas and regions where this makes sense) or to PnP franchisees.
It says in the coming months, at least 14 supermarkets will be shut, with another “more than 10” to be converted to Boxer.
This article was republished from Moneyweb. Read the original here.
For more news your way
Download our app and read this and other great stories on the move. Available for Android and iOS.