It took a few weeks for Pick n Pay’s board to convince its former CEO Sean Summers to rejoin the company 16 years after leaving the now-struggling company that was once voted top retailer in the world.
“Pick n Pay has always been an integral part of my life. I have kept my relationship with Raymond [Ackerman, late founder] and the family right until the end. And Raymond and I used to joke about me coming back to Pick n Pay — not knowing that it [would] happen. I think he's looking down with a smile on his face. I think he’d be happy with my decision.”
Summers worked for Pick n Pay between 1974 and 2007, becoming MD in 1996 and CEO in 1999. During his tenure, Pick n Pay was the clear grocery market leader in South Africa, the company said.
Now Shoprite, whose brands include USave and Checkers, is the biggest food retailer, and has for years been chipping away competitors' market share thanks to its vast footprint in SA, cheaper pricing and stock availability.
Pick n Pay’s recent trading update paints a bleak picture for the company, which at one point under Summers was voted the global retailer of the year.
“We beat [US fashion retailer] Abercrombie & Fitch into second place. Pick n Pay was a globally respected company but unfortunately over time it lost its ability to execute on that,” said Summers.
All Shoprite has done is what Pick n Pay did when the latter lost its momentum. “They haven't invented anything new,” he said.
Summers said Pick n Pay needs a “real truthful introspection”.
“We've got to ask ourselves the question: why have our customers to a large degree fallen out of love with us? And I would like to think this is a temporary thing and I think it also has to do with the landscape in South Africa. I think our customers desperately would like us to be back. And we desperately want to come back.”
Summers, 70, said the business needs to get back to basics.
Pick n Pay has always been an integral part of my life. I have kept my relationship with Raymond and the family right until the end ... I think he's looking down with a smile
— Sean Summers, Pick n Pay's former and next CEO
“What we need to do is to get back to the good old basics, making sure that what you promised is delivered to the stores, and that the merchandise is good. It's just getting back to basics.”
Pick n Pay’s chair, Gareth Ackerman, said in a statement that “unfortunately, in a very difficult environment, the performance of our core Pick n Pay business has been very challenging over the past months, and has not met expectations”.
Pick n Pay will report a loss at the earnings and headline earnings levels in the half year to August primarily due to restructuring costs, duplication of supply chain costs and energy costs caused by load-shedding.
Ackerman said Summers’s goal is to turn around Pick n Pay's core retail engine, while ensuring the continued success of the group’s growth strategies.
Philip Short, a senior equity analyst at Flagship Asset Management, said it has been a challenging macro environment since outgoing CEO Pieter Boone joined Pick n Pay but the relative underperformance vs Pick n Pay’s major competitor is material.
“A change was needed.”
He said where the retailer struggled a few others have shone. “It’s difficult once you’ve fallen behind in market positioning: while you’re trying to catch up, your competitors have the time and positioning to focus on innovation and better customer delivery, meaning you’re likely to fall behind even more,” he said.
Asked whether Pick n Pay could take pole position again, Short said: “It will take a lot of investment and focus by PnP and a distracted Shoprite. The former is possible while the latter is unlikely in the medium term.”
While it’s still early days, with Summers planning to be full time in South Africa from December, he said one of the top objectives was to “win the war of the hearts and minds of our people within the company”, adding: “We've got to make sure that we're all focused on the same goal and mission and that is to serve our customers. That's where we need to focus all our energies and efforts because that's all we do.”
After leaving Pick n Pay, Summers moved to the UK and worked for Steinhoff’s retail businesses in the US, the UK and Australia. He was also involved in start-up companies as an adviser and investor. When he came to South Africa, he would visit Pick n Pay stores. He commented: “You could see that the real passion and love for buying and selling was slowly being diminished in the organisation.”
Explaining what could have gone wrong, Summers said: “There are many levers that you can pull, and it's a combination of the people in the store [and] the environment. How does the store look? Is it fresh? Is it tiny? Is it new? And then is the product actually there and available for sale? And then it's the whole marketing on how the company is viewed from the outside. So it's a combination of all of those things.”
Jan Meintjes, portfolio manager at Denker Capital, said service levels at Pick n Pay stores are an issue.
“The customer experience has been poor and on-shelf availability has been lagging as well. Price perception is generally also favouring Checkers and Shoprite. There is a lot for Summers to do.”
Last year, Pick n Pay embarked on a new strategy called Ekuseni, which resulted in some core stores being revamped into two distinct brands in a bid to make further inroads into the discount, convenience and premium market segments.
It converted some Pick n Pay stores to QualiSave for the middle-class market, while Pick n Pay focused on high-end consumers. Boxer, which along with Pick n Pay Clothing has been the star performer of the group, is focusing on the lower-end market and competes with Shoprite's USave.
The strategy was devised by Boone, who was with the company for just over two years.
Commenting on Ekuseni, Summers said: “We've got to look at all the components of the strategy and where we need to review what we've done.
“We need to assess with the benefit of hindsight whether we are going in the right direction. I think we need to have a critical reassessment of some of the elements of Ekuseni, but overall it's been very good. I mean, Boxer and Clothing are fantastic businesses. Online is evolving.”
Meintjes said Boone had a clear idea of what he wanted to do, but load-shedding and strong execution from Shoprite made it difficult to execute.
“The business needs investment to improve the customer experience and the balance sheet came under pressure. Given the difficult market conditions and the constraints they have, the execution was expensive and difficult to achieve.”
Short said the Ekuseni strategy was “pretty good ... but it was too late. Going into a PnP used to feel like they were trying to be everything to everyone, whereas Shoprite, Checkers, Woolworths all serve a specific target market. PnP were trying to compete with Shoprite on price but were in the same shopping centres as Woolworths. So I think the Ekuseni customer segmentation strategy was the right one — but too late.”
Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said Summers has challenges. Shoprite “is firing on all cylinders and Pick n Pay is extremely far behind in terms of infrastructure and logistics. I think Pick n Pay lost this battle slowly over time — they simply underinvested in themselves over the past 15 years.”
After opening a record 382 new store, taking the total to 3,326, Shoprite plans to open 314 more across its brands. It surpassed R200bn sales in the year to July 2.
Pick n Pay has just over 2,200 stores, with hundreds more openings planned. It recorded R106.6bn in turnover in the year to February 26 this year.
Treurnicht said Pick n Pay can make big gains by just doing a few things right. “Even if they must go out and copy Shoprite. They made big mistakes simply out of their own doing.”
Summers's appointment surprised the market and was met with mixed reactions.
Meintjes said the appointment “is a clear signal that the Ackerman family is firmly in the saddle”.
“This is a strong message that the family will remain very much involved in the business..”
Treurnicht, who criticised Summers's appointment, said: “We have the necessary talent right here in South Africa and I am sure there are candidates in Pick n Pay who are fit for the job. Pick n Pay makes a few strategic mistakes time after time. Perhaps the Ackerman family should hand over the reins fully and stop meddling.”
Meintjes said: “I think it is difficult for talent [in a company] to prosper when you feel as if you are playing in a losing team all the time. Where a family is in control, extra care should be taken to show talented people that there is room at the top for them.”
Summers said part of his appointment is to address the issue of succession.
“One of the things that excites me is that I know that 95% or 98% of the people in the company today weren't there when I was there. And that excites me because we're going to find a team to take this company forward for the next 20 years. So it's not a case of me holding the baton for a while.”
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