Mr Price gets cooking as clothing retailer diversifies into kitchenware

Value retailer Mr Price has acquired Yuppiechef, the upmarket kitchen products retailer, for a sum that was not disclosed, but which represents 1% of its R47-billion market capitalisation, which would make the deal value around R450-million. This is well below the 5% market cap threshold at which the JSE requires mandatory disclosure. 

Yuppiechef burst on to the online scene almost 15 years ago, founded by two friends, Andrew Smith and Shane Dryden, who shared a passion for cooking and an interest in kitchen tools. The brand initially started with 32 products and now stocks thousands, including 300 of the world’s leading brands. Their focus on quality and service, which saw a handwritten thank-you note included in every delivery, convinced a still-sceptical public to shop online.  

Fast forward 10 years and the team has recognised that many shoppers prefer the physical store experience and so Yuppiechef’s online platform expanded to include seven physical stores, as well as a wholesale division, which develops and imports branded goods for wholesale distribution. 

The retail division is still the biggest, representing 85% of turnover, of which 70% is via e-commerce.

This acquisition is part of a strategy announced by Mr Price CEO Mark Blair at the presentation of the company’s full-year results in June 2020. After 20 years of organic growth, management had identified several category extensions and new concepts which would be pursued either organically or via acquisition, he said. 

Blair, the group’s former CFO, took the reins from Stuart Bird, who retired at the end of 2018. During the eight years that Bird led the company, earnings grew at a compound rate of 18.8% and the group became one of the top-performing retailers in southern Africa, with a market capitalisation of over R60-billion.

However, latterly the growth rate had begun to slow, affected by South Africa’s poor economic growth and growing levels of unemployment.

The board, with the blessing of the former CEO, tasked Blair with developing and executing a strategy that would take the group into its next phase of growth.

Thus, at the presentation of the results in late May, Blair announced that Mr Price would be expanding its offering into school, baby and novelty and gifting categories. The school and baby categories are each R4-billion markets and present an opportunity to take market share from the incumbents.

The group also announced that it intended to raise R3.5-billion via a rights issue to shore up the balance sheet and finance acquisitions.

Six months later, at the presentation of the half-year results, the group announced the acquisition of Power Fashion, a Durban-based value retailer that is aligned to Mr Price’s core capability. The acquisition, which was 4% of its market cap, and which was settled with cash, gave the company access to low- to mid-income households and adds geographic diversity by virtue of the fact that the stores are on high streets rather than in malls.  

At the same time, the company said plans for an equity raise had been halted as its balance sheet was sound with R6.4-billion in cash and no debt. 

Acquisitions would be financed with cash reserves and short-term debt. 

The Yuppiechef acquisition marks Mr Price’s second acquisition in 20 years and takes the group into a higher LSM customer base.

“I’m generally sceptical about acquisitions as very few of them work,” says Reuben Beelders, chief investment officer at Gryphon Asset Management. “But this does seem a good fit as it gives Mr Price a toe in the water [of higher LSM spending] and access to a fast-growing online retail space, which certainly seems to be the place to be. I’d hope that they haven’t overpaid just to be in this space.” 

For Yuppiechef the deal gives the company access to a bigger balance sheet that will allow it to broaden its product assortment and expand its physical presence beyond the current number of stores. DM/BM