The outlook for the retail sector seems bleak as load-shedding continues to increase costs and Pick n Pay this week strongly criticised the government’s lack of action in addressing economic challenges, warning of possible food shortages.
On Thursday, Pick n Pay, which also owns food retail brand Boxer, bemoaned inflationary cost pressures, exacerbated by a worsening of load-shedding. It said it had spent R522m on diesel to run generators in the 52 weeks to February 26 and was targeting savings in diesel costs of about R200m by buying renewable electricity from landlords and installing in-store battery energy storage.
It was also focused on getting diesel tax rebates as it felt it “is unconscionable to pay significant tax, including the Road Accident Fund levy, on diesel used to keep grocery stores open”. Since last month, food manufactures have been allowed to claim back for diesel used for generators.
Chris Gilmour, an investment analyst at Salmour Research, said the outlook for Pick n Pay and the sector generally was bleak. “So much depends on the state of load-shedding. If it persists at current levels, the sector will really struggle as consumers buy less and less. All retailers will struggle in this environment,” he said.
Shoprite said it had spent R560m on diesel to power up its stores in the six months to January. One of the consequences of blackouts is increased food waste, both in store if the cold chain is broken and at consumers’ homes. Pick n Pay chair Gareth Ackerman cautioned that the entire food industry was under existential threat.
We cannot insulate consumers entirely from the impact of the energy crisis
— Gareth Ackerman, Pick n Pay chair
He warned of a greater probability of social unrest due to food shortages and possible store closures if blackouts continued.
“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,” he said. In an interview, Pick n Pay CEO Pieter Boone said the company would continue to engage with government on issues, including the diesel rebate package, because “entire costs will be passed on to retailers and eventually to the consumer”.
Ackerman said 37% of the cost of each litre of diesel Pick n Pay bought had gone into government coffers as a windfall tax. Boone said the entire food value chain was being disrupted by load-shedding and the retailer was starting to experience shortages in essential items such as maize meal, and printing and toilet paper.
“We’re operating in a challenging environment ... I don’t think that the situation will become much easier. So I think it’s time that the government really wakes up and starts showing some active leadership and tackles this problem.”
Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said food retail “will continue to be a struggling enterprise from a macro point of view.
“We are closer to a peak in interest rates, although I would not bet on the fact that they will come down sharply soon ... the consumer will continue to be under an enormous amount of pressure.”
Ackerman said Pick n Pay had “absorbed much of the cost inflation … by saving costs in our business. But we cannot insulate consumers entirely from the impact of the energy crisis”. Pick n Pay was working on a plan for stage 8 load-shedding, said Boone. Group turnover increased 8.9%, driven primarily by Boxer, while profit before tax of R1.67bn declined 15.1% year on year.
Excluding electricity-related costs, underlying profit before tax would have been up 7% to about R2.1bn. Boxer sales were up 20.2% to R31.3bn, driven by a store rollout programme — 60 new stores were opened, taking the total to 428, while about 70 new stores are expected to open during the 2024 financial year.
Sales at Pick n Pay and QualiSave were up 3.5%, although affected by disruption from the revamp of 131 stores. Some stores have been converted into QualiSave for the middle-class market, and some will retain the Pick n Pay brand to cater for high-end consumers. Boone said he was pleased with the early results from the upgraded stores.
But Treurnicht said: “I believe investors are questioning the benefit of the heightened capital spending and the change in dividend policy … in other words, shareholder returns”.
Gilmour said these were “exceptionally poor” results and largely caused by heightened load-shedding.
“It appears to be losing out relative to its competitors.
“This couldn’t have happened at a worse time for Pick n Pay, coming in the middle of an investment phase, and this has set the organisation back significantly.”
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