After the Bell: Sometimes you pick, sometimes you pay

The JSE was rocked on Monday morning by the announcement that the Ackerman family was stepping aside as the controlling shareholder in Pick n Pay as part of a big restructuring of the business. At the moment, the family has a 25% interest, but there is also a control structure that will have to be dismantled. 

The restructuring, I fear, is going to be harsh, as these things always are. The company said it was looking at about 100 stores, which doesn’t sound like much since the company operates more than 2,000 stores in several formats in eight countries. Not all of those will be closed, but some will be changed to the cheaper-format Boxer outlets, which leaves about 30 that might be closed at the end of the day. 

You have to say, the Ackermans’ decision to relinquish control is a generous one. Legally, there was nothing obliging the family to make this concession. But you also have to say that the company has its back to the wall. It’s amazing, but even though Pick n Pay is SA’s third-largest retailer by turnover, its market cap is one-fifth that of Clicks, which sells pills and soap (and okay, kettles and make-up and other stuff).

And in some ways, it’s all very sad. Raymond Ackerman was the doyen of SA retail and he died only recently, late last year. Ackerman famously started Pick n Pay after he was booted out of Greatermans after making a success of Checkers which is now part of the Shoprite group, for making what seem then to be outrageous proposals and asserting things like the desirability of something nobody had heard of, called “malls”. He then put his ideas into practice and in doing so, changed SA forever. An added irony is that Ackerman bought the first four Cape supermarkets that began his odyssey from Jack Goldin who also started the above mentioned Clicks.

It’s amazing how the boot is now on the other foot. SA arguably has too many malls, as can be seen very graphically in the restructuring efforts of one of SA’s largest malls, the Fourways Mall. Other innovations that changed SA retailing, like franchising, are also proving problematic in some cases.  

Recently in conversation with Gareth Ackerman, I asked what had gone wrong. He mentioned several issues, some of which are deeply “inside baseball” retail, like the split between fresh and general merchandise in the stores. He mentioned something else which I suspect might be key. Shoprite’s methodology had one innovation that Pick n Pay overlooked — hub-and-spoke replenishment. This is partly because history unfolded as it did, but also partly because Shoprite’s managers are extremely good retailers. 

The process of replenishing these stores is enormous, and as the quantity and differentiation of the products on the shelves has massively increased, the science of logistics has become the central part of a retail network.

Pick n Pay put a lot of emphasis on replenishing stores on a store-by-store basis, whereas from quite early on, Shoprite developed huge storage areas and operated on that “hub-and-spoke” system. Recently, Pick n Pay adopted that system too, but Ackerman said the consequence was that much of the previous storage areas in the stores were now empty as the replenishment was taking place more efficiently. However, there is still a cost to holding on to that space.

Debt

• Article corrected to reflect that its not Mall of Africa that is restructuring but the Fourways Mall.