By: Tawanda Karombo

PICK n Pay has embarked on a restructuring plan to save its market position and claw out of huge debts, with chairperson Gareth Ackerman set to relinquish control of the South African grocer that on Monday reported a reversal of fortunes into a R1.5 billion loss.

As bigger rival operator Shoprite and other competitors such as Woolworths appear to be riding out South Africa’s turbulent economy, Pick n Pay is apparently feeling the pinch of a severe financial strain worsened by its breach of debt covenants.

At a time Pick n Pay is seeking to close as many as 100 stores, Shoprite is growing its market share in South Africa, disclosing recently that it added nearly 200 new stores in the half-year period to end December, bringing its total to 3,543.

Market analyst Simon Brown on Monday reckoned that Pick n Pay “is in trouble and needs cash” as soon as possible.

In March, the board of Pick n Pay authorised the grocer to take up loan facilities amounting to R1bn with banks such as FirstRand.

As at the end of February 2024, net debt in Pick n Pay had grown from R3.7bn in 2023 to nearly double at R6.1bn.

The company said this had worsened its losses as a “significant escalation in interest charges, driven by the additional funding raised and an increase in underlying interest rates over the period” weighed down on profitability prospects.

Pick n Pay is putting up some of its struggling stores under franchise, although analysts said there will be fewer investors interested in snapping up stores that the company failed to run profitably on its own.

But with different strategies, other experts believe the stores being disbanded can be turned around.

“With some store closures on the horizon, opportunity is opening up for other chain stores with more profitable business models to take that space,” said Robin Brimer, an independent management consultant.

The Boxer budget chain stores, however, presented a bright spot for Pick n Pay.

In fact, the company is also pursuing a strategy to place a few other Pick n Pay stores under the Boxer chain.

This comes as consumers, hard-hit by inflation and elevated interest rates, are trending down to budget retailers.

Pick n Pay admitted as much on Monday, saying the “under pressure consumers (are) increasingly shopping promotions” to derive some value in light of economic difficulties.

The food and clothing retailer announced this year that it will be undertaking an initial public offering (IPO) for Boxer, in addition to a R4bn rights offer.

Ackerman said this was the “best approach to reinvest in our company, recapitalise the business, and reduce debt” obligations.

“This will enable Pick n Pay’s management to start investing back into the business for growth,” he said on Monday.

The group said Ackerman Investment Holdings had opted to follow its rights in the upcoming capital raise which would result in the family which founded the grocer ceding control of Pick n Pay.

Ackerman will be retiring from the board of Pick n Pay next year.

However, financial analyst Shannon May Gerbe said that this year’s poor performance by Pick n Pay may have forced Ackerman to let go of control of the company.

“I would have thought they would maintain control and appoint new leaders but maybe with the poor performance, it made sense to let go,” said Gerbe.

The Boxer IPO has ignited optimism though, with investment managers seeing strong demand for shares in the retailer when its IPO launches later this year.

Roy Topol, portfolio manager at Cratos Asset Management has, however, previously told Business Report that there “is likely to be plenty of demand for shares in Boxer” which he described as “a well-run and highly profitable part of the Pick n Pay group”.

He added that Boxer was lucrative, intimating that the budget retailer was probably worth “more than the entire market cap of Pick n Pay” on its own.

“The issues that the group has faced are primarily from corporate owned Pick n Pay supermarkets. So they could actually raise the full R4bn from selling a minority stake in Boxer alone,” said Topol.

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