Pick n Pay results encouraging despite rolling blackouts

Retailer Pick n Pay’s financial results for the previous financial year were encouraging despite the substantial impact of load shedding and related costs, particularly in the second half of the trading year. The group spent R522 million on diesel to run generators during rolling blackouts.

Gareth Ackerman, chairperson of the Pick n Pay Group, also criticised how government is handling the problem of load shedding and its impact on food security.

Group turnover increased by 8.9%, with Boxer making a significant contribution with increased sales growth of 20.2% after opening 60 new stores and being on track to reach its target of opening 200 stores and doubling sales by 2026.

Pick n Pay South Africa’s sales grew by 4.3% although it was affected by some disruption in stores as the group started implementation of its new customer value proposition. The group’s turnaround during the past financial year included the launch of 118 Pick n Pay QualiSave stores, a full conversion of 131 Pick n Pay and QualiSave stores and fully converted stores achieving an uplift of more than 10% in sales growth post conversion.

In addition, Pick n Pay Clothing achieved 15.3% sales growth, while the group opened 58 new clothing stores. Online sales also grew by 72%, with on-demand sales growth well in excess of 100%, driven by asap! and the new Pick n Pay offer on Mr D, in partnership with Takealot, which was launched in October 2022.

Cost discipline and efficiency gains enabled the group to restrict internal inflation at 8.5%, well below CPI at 10.4%.

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Rolling blackouts had significant impact on Pick n Pay results

“Load shedding has had a material impact on our results, particularly through massive increases in diesel costs. We are accelerating our energy resilience plan to mitigate these costs in the future,” Pieter Boone, Pick n Pay CEO, says.

Ackerman says rolling blackouts placed the economy under enormous pressure. “South Africa is simply not growing at the required rate to ensure improvements in employment and living standards for all South Africans. We need to grow the size of the cake before we try to cut it differently.”

He pointed out that the energy crisis is particularly challenging for food retailers because they rely on electricity to keep food chilled and safe, while burning diesel generators adds massively to their costs.

“We are at a particularly precarious time in South Africa. With official unemployment sitting at 32.7% and much higher among young people, the IMF has just forecast our growth at 0.1% this year. That is not even standing still. It is going backwards. Investment in our economy is critical. Pick n Pay’s investment of R4bn into the business over the past year shows our commitment to build for the future.”

He says few companies invest at this scale and, in the group’s experience, food manufacturers do not invest in their plants to the degree required to maintain adequate market supply which affects food security. “I was also disappointed to see how poorly South Africa was doing relative to other economies in attracting foreign investment as reported at the recent investment summit.”

Ackerman referred to the fact that the group spent around R60 million per month on diesel in recent months and said it is an extraordinary challenge to manage a business on this basis. “Without this unnecessary cost, our results would have beaten our own forecasts and those of many external commentators.”

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37% of diesel cost is windfall tax

He also found it shocking that 37% of the cost of each litre of diesel bought, which amounted to over half a billion rand, went to government coffers and the RAF as a windfall tax.

“This is unconscionable, particularly when rolled up across the economy and the hardship the blackouts are causing. Requests by the retail industry to be included in the government’s diesel rebate package have so far fallen on deaf ears.” 

The Pick n Pay group has worked on an energy resilience plan as daily blackouts became our new reality, but Ackerman says no company can absorb these costs indefinitely given the scale of the investment needed to keep the power on and stores open.

“We absorbed much of the cost inflation, particularly on basic commodities, by saving costs in our business, but we cannot insulate consumers entirely from the impact of the energy crisis. Food inflation is also driven by global factors. Eskom has transferred some of its generation costs to industry through the stages of blackouts. We have had to absorb these costs.” 

Despite these pressures, the group again kept internal inflation below CPI. “It is therefore distressing to see irresponsible efforts to shift the blame for food inflation onto retailers. The recent statements by the Competition Commission and government spokespeople are a case in point. They have inexplicably accused the sector of making unjustifiable profits. This is incorrect and irresponsible.”

ALSO READ: Eskom’s shrinking future

Food waste in a country of hungry people

Ackerman also pointed out that an estimated 45% of South Africa’s total available food supply is lost or wasted annually – and load shedding increases the food waste. “In a country that already registers troubling levels of poverty and hunger, this is unacceptable.”

The Pick n Pay group said it reduced food waste by nearly 30% over the past four years and is working to reduce it by 50% by 2030, by donating more than 880 tons of edible surplus food to FoodForward SA valued at more than R35 million.

“However, I feel compelled to caution that the entire food industry is under existential threat. The probability of social unrest relating to food shortages and possible store closures if blackouts get too high is now heightened. Faced with the reality of structural economic decline, the only meaningful government action seems to be inaction, and to place blame on those trying to help solve the problems.”

Ackerman also warned against mixing policy with politics at a time when growth-oriented policy change and certainty should be the only items on the agenda. “How our government can risk AGOA – and other bilateral agreements – through overt support for Russia after its invasion of Ukraine and threatening to withdraw from the ICC is beyond understanding.”

South Africa’s growth depends on important policy shifts, but we are unlikely to see them happen before next year’s elections, he says. “Our country has boundless potential. But we must all act decisively in shaping our destiny.”