The Finance Ghost: Pick n Pay’s pain is Shoprite’s gain and Lewis share price up 71% this year

Grocery retail is a competitive bloodbath. It’s brutal, yet so much of the pain happens gradually in the background. It’s about the small changes to gross margin, driven by a more efficient retailer being consistently cheaper than a less efficient retailer, thereby winning more market share and customer loyalty.

It’s about the volume rebates from suppliers that create a flywheel effect, making successful retailers more successful over time.

And, of course, it’s about the difference between opening stores and closing them. When a retailer is forced to walk away from trading space, another can jump in and become the go-to grocery store in the neighbourhood.

In the Pick n Pay versus Shoprite battle, we are watching this play out in our shopping centres. At Shoprite, double-digit growth remains the flavour. It achieved sales growth of 10.4% for the quarter ended September and opened a net 68 stores.

The core Supermarkets RSA segment is still the key, up 11.4% for the period. Although this is a bit slower than last year, inflation has calmed down and this affects growth rates. The other strong growth rate worth highlighting is sales to OK franchises, up 13.6% after growing an impressive 22.0% in the base period. Supermarkets Non-RSA grew 3.2% in rand, a reminder of why Shoprite pared its ambitions in the rest of the continent.

Any of these growth rates would be a dream for Pick n Pay, where the highlight in an awful set of numbers for the core Pick n Pay business is that company-owned supermarkets ach­ieved like-for-like growth of 3.1%. Yes, that’s slower than Shoprite’s growth in the rest of Africa, translated to rand.

Boxer is by far the best business in the Pick n Pay group, which is why it is using that asset to raise between R6-billion and R8-billion by selling part of the stake to institutional investors. The separate listing of Boxer is expected to be concluded this year. With turnover growth of 12% for the six months, Boxer is growing even faster than Shoprite’s Supermarkets RSA.

Tempting as it may be to suggest that some of Boxer’s success can be copied in Pick n Pay to achieve a turnaround, the two businesses have already been in the same group for several years. They have completely different strategies, one of which is working beautifully and one of which is failing. I am not bullish at all on a Pick n Pay recovery. It needs to turn the Titanic around, and the iceberg isn’t far away.

Lewis gives the market something to celebrate