PART 3 - STRATEGIC AND CHANE MANAGEMENT ARTICLE 5 Pick n Pay surges as Boxer, price hikes boost profit Nick Wilson 03 October 2022 Pick n Pay's shares rose almost 7% on Monday after it flagged double digit sales and earnings growth Pick n Pays profitability was supported by recent price hikes, with the groups internal selling price inflation for the period reaching 7.2%. Its value brand Boxer also made a strong contribution. Get the biggest business stories emailed to you every weekday, or go to the News24 Business front page. Shares in Pick n Pay surged almost 7% on Monday afternoon after the retailer flagged double-digit sales and earnings growth supported by a strong performance from its value brand Boxer and higher prices. Pick n Pay expects sales growth of 11.5% for the 26 weeks ended 28 August, with like-for-like sales up some 7.4%. Headline earnings were expected to be 20 to 30% higher. The sales growth was primarily driven by a strong performance from Boxer, with the company saying the year-on-year sales growth from the Pick n Pay supermarkets upgraded to new "customer value propositions" had been "particularly encouraging".However, the company said the upgraded stores "do not yet constitute a substantial enough proportion of the estate to meaningfully impact the overall performance of the Pick n Pay brand". The retailer earlier this year split its core Pick n Pay offering into two distinct brands as it looks to make further inroads to the discount, convenience, and premium market segments. Pick n Pay serves higher-income customers, while Pick n Pay QualiSave focuses on customers in the growing middle market. Its Boxer brand would continue to serve customers in the lower to middle income segments. Price hikes Pick n Pays profitability was supported by recent price hikes, with the groups internal selling price inflation for the period reaching 7.2%, "reflecting a sharp uptick over July and August" compared to the 5% reported for the first 18 weeks of the financial period. Pick n Pay noted sharp increases in food price inflation in South Africa, as measured by Statistics SA as part of the consumer price inflation from 8.6% in June to 11.3% in August. It stressed that its price hike was still below the official consumer price inflation. Casparus Treurnicht, portfolio manager and head of research at Gryphon Asset Management, said that looking at the groups "top-line figures" Pick n Pay is definitely starting to perform better overall and "looking like they could start to reclaim back some market share". "This trading update is a very good indication that Pick n Pay is already starting to reclaim back lost market share. The retail environment is going to get very competitive with disposable incomes under pressure". Treurnicht said Pick n Pay had also indicated it had received a "good response" to its new formats and that he believed the decision to move in this direction was a "very good development". Treurnicht said Pick n Pays internal i.

1. PART 3 - STRATEGIC AND CHANE MANAGEMENT
ARTICLE 5 Pick n Pay surges as Boxer, price hikes boost profit Nick Wilson 03 October 2022
Pick n Pay's shares rose almost 7% on Monday after it flagged double digit sales and earnings
growth Pick n Pays profitability was supported by recent price hikes, with the groups internal
selling price inflation for the period reaching 7.2%. Its value brand Boxer also made a strong
contribution. Get the biggest business stories emailed to you every weekday, or go to the
News24 Business front page. Shares in Pick n Pay surged almost 7% on Monday afternoon after
the retailer flagged double-digit sales and earnings growth supported by a strong performance
from its value brand Boxer and higher prices. Pick n Pay expects sales growth of 11.5% for the
26 weeks ended 28 August, with like-for-like sales up some 7.4%. Headline earnings were
expected to be 20 to 30% higher. The sales growth was primarily driven by a strong performance
from Boxer, with the company saying the year-on-year sales growth from the Pick n Pay
supermarkets upgraded to new "customer value propositions" had been "particularly
encouraging".However, the company said the upgraded stores "do not yet constitute a substantial
enough proportion of the estate to meaningfully impact the overall performance of the Pick n Pay
brand". The retailer earlier this year split its core Pick n Pay offering into two distinct brands as it
looks to make further inroads to the discount, convenience, and premium market segments. Pick
n Pay serves higher-income customers, while Pick n Pay QualiSave focuses on customers in the
growing middle market. Its Boxer brand would continue to serve customers in the lower to
middle income segments. Price hikes Pick n Pays profitability was supported by recent price
hikes, with the groups internal selling price inflation for the period reaching 7.2%, "reflecting a
sharp uptick over July and August" compared to the 5% reported for the first 18 weeks of the
financial period. Pick n Pay noted sharp increases in food price inflation in South Africa, as
measured by Statistics SA as part of the consumer price inflation from 8.6% in June to 11.3% in
August. It stressed that its price hike was still below the official consumer price inflation.
Casparus Treurnicht, portfolio manager and head of research at Gryphon Asset Management,
said that looking at the groups "top-line figures" Pick n Pay is definitely starting to perform
better overall and "looking like they could start to reclaim back some market share". "This
trading update is a very good indication that Pick n Pay is already starting to reclaim back lost
market share. The retail environment is going to get very competitive with disposable incomes
under pressure". Treurnicht said Pick n Pay had also indicated it had received a "good response"
to its new formats and that he believed the decision to move in this direction was a "very good
development". Treurnicht said Pick n Pays internal inflation rate was "rapidly rising" indicating
the increasing food inflation that would not be good for consumers, particularly those in the
lower living standards measures (LSMs). "We knew this was a reality and here it is in the

2. numbers - it is concerning from a macro point of view. They are passing it (rising inflation) onto
the consumer and this is helping the revenue number. The likefor-like number is going up in line
with inflation, which means volume growth is actually stationary. Retailers are fighting it out for
a bigger piece of the basket." Richard Cheesman, senior equity analyst at Protea Capital
Management, said it would seem that Pick n Pay had delivered "solid top-line growth" supported
predominantly by inflation. Pick n Pay citing Boxer as a strong contributor was not surprising as
the brand had been "a key area of growth for a period of time", said Cheesman.
ARTICLE 6 Pick n Pay reconfigures and grows through tough, high inflation environment CEO
Pieter Boone said in a telephone interview that the Pick n Pay results were pleasing considering
the headwinds the group faced, including rising food and internal inflation. 19 October 2022 Pick
n Pay posted strong sales at its supermarkets, particularly at Boxer stores, which, with cost and
prices cuts, and by driving change through their new Ekuseni strategy, resulted in the interim
dividend rising 25.3% to 44.85 cents in the six months to end August. CEO Pieter Boone said in
a telephone interview that the results were pleasing considering the headwinds the group faced,
including rising food and internal inflation, particularly on energy costs such as having to keep
the stores open with generators through load shedding, which cost the group R110 million in the
six months. Group turnover was up 11.5%. After normalising for disruptions in the base period
due to the civil unrest, and Covid-19 liquor restrictions last year, turnover increased 8.2%.
Turnover growth for the first four weeks of the second half was 8.4%. Internal selling price
inflation of 7.2% reflected the general inflationary environment. Boone said they had stuck to a
commitment to support customers through lower prices by holding selling prices below CPI
Food, which rose from 8.6% in June to 11.3% in August. However, Boone said he was cautious
about prospects in the second half, as they anticipated continued strong headwinds including
continuing inflationary pressures, rising energy prices and load shedding. Nevertheless, he said
they were confident about their preparedness for a strong Black Friday and Christmas season
performance. He said they had achieved much in the five months since the launch of the Ekuseni
strategy in May. We have unveiled a new retail banner in Pick n Pay QualiSave, dedicated to
customers who want Pick n Pay quality at exceptional prices. We are rejuvenating our Pick n Pay
stores at pace, and the sales growth and customer feedback in these stores is encouraging. We
have also launched our new Pick n Pay online grocery offer on Mr D... and we will roll it out
nationally by the end of the year, he said. Turnover growth in the Boxer and Pick n Pay
businesses were reported separately for the first time. Value store chain Boxer South Africas
turnover grew strongly 27.2% to R15 billion and they were on track to double Boxer sales over
the four years of the Ekuseni plan, said Boone. Stakeholders can now see why we are so excited
about the potential of Boxer.We are opening new Boxer stores rapidly and will accelerate this in
the coming months, he said. Pick n Pay South Africa (Pick n Pay and QualiSave) grew sales

3. 5.4% to R34bn, a performance Boone described as respectable in a tough market. The redefined
customer value proposition (CVP), the first building block in the Ekuseni strategy, saw 41 stores
upgraded to the new CVP, with plans to increase this to 130 stores by the end of February. The
upgraded stores were seeing weekly sales growth of 15% compared to a year ago. Meanwhile,
the Pick n Pay QualiSave brand was launched on August 15, and so far 93 stores had been
converted to the brand. Some R315m of savings in the group were delivered, enabling Pick n Pay
to restrict like-for-like cost growth in South Africa to below like-for-like sales, and Boone said
they were on course to achieve a targeted R750m saving in costs by year end. A key
development was the signing of a multi-skilling agreement with labour union Saccawu,
improving productivity and customer service and in line with international trends. The gross
profit margin increased to 19.4% from 18.2%. Taking the effects of the July 2021 riots into
account, the gross profit margin contracted by 0.6% points, reflecting also investments in lower
prices, and energy cost increased. Online sales grew 82%, primarily through Pick n Pay asap!
Growth was expected to accelerate following the launch this month of the new Pick n Pay
grocery offer on the Mr D app, with full national coverage by the end of the year. Pick n Pay
Clothing saw 14.8% sales growth, opening 28 new stand-alone stores. Group liquor sales grew
36.2%. 17 new liquor stores were added, taking the total to 646 stores.The Rest of Africa
segment contributed sales of R2.4bn, an increase of 17.9%. Pro forma pre-tax profit of R131.9m
(before the application of hyperinflation accounting) was up 44%, with another good
performance from Zimbabwe. What the analysts said: Despite the Pick n Pays solid results
yesterday, the share price slipped a hefty 8.5% to R58.99 yesterday afternoon. Gryphon Asset
Management portfolio manager Reuben Beelders said the decline was likely due to investors
who had bought the shares as part of a defensive strategy in an uncertain environment, who had
been reminded that the new CEO had warned last year that returns at this year end may be
muted, due to investments required to reshape the group. Zinhle Mayekiso, an analyst at Anchor
Capital, also said that while Pick n Pay had recorded a good top-line growth performance during
the period under review, external cost pressures had resulted in underlying margin pressures.
These headwinds are expected to persist in the second half of FY23 (financial year). Increased
cost pressures and a tougher macro-economic environment are also key market concerns that will
be an overhang for the share price over the near term, Mayekiso said. The retailers Ekuseni
strategy is still in its infancy and is expected to provide meaningful growth for Pick n Pays
traditional stores from FY24 (financial year 2024) onwards, Mayekiso said. Meanwhile, Jami
Jepthas, an investment analyst at Mergence Investment Managers, when asked by Business
Report how Pick n Pay was doing versus rival Shoprite, she said in terms of Pick n Pays online
sales, while it grew 82% year on year in the first half of 2032, this was a deceleration from the 18
weeks ended July 3 (+97.3%). The growth in online sales is still significant given this is post-

4. pandemic growth, but it still lags Checkers Sixty60 latest reported sales growth of 150% for
FY22, she said. Jepthas said she was impressed by the Boxer results as Pick n Pay reported the
Boxer sales numbers separately for the first time. Boxers absolute sales and contribution to group
sales are ahead of my estimates and likely ahead of what the market estimated for this business,
Jepthas said. Boxer SA sales growth in the first half was 27.2% compared to the latest reported
sales growth for Shoprite and Usave of 6.7% and 11.4%, respectively. Boxers like-for-like sales
growth excluding the civil unrest impact was 14.2%, which is still ahead of Shoprite and
Usaves latest numbers, which do not include the civil unrest base. Another positive from this
result was management confirming that they are on track to achieve Boxer targets communicated
to the market (61 new stores in FY23 and doubling sales by FY26). Boxer was not just catching
up to Shoprite but seemed to be outperforming them, Jepthas said. According to Boxer and
Shoprites FY22 numbers, it looks like Boxer is generating 1/3 of Shoprite and Usave sales
combined, from a store base, which is only about 1/5 the size of the Shoprite and Usave
supermarket estate, she said. Jepthas said as to whether they were catching up to Shoprite, from a
Pick n Pay core groceries perspective, they still had some way to go to catch up to Shoprite.The
combined Pick n Pay and QualiSave SA sales grew 5.4%, which includes Clothing, which grew
at 14.8% and Liquor, which grew at 36.2%. This implies the underlying Pick n Pay core
groceries sales still lag Shoprite quite significantly. The new customer value propositions (CVP)
from their Ekuseni strategy have only been fully implemented for one quarter in only
approximately 13% of the companyowned supermarket estate. As they continue to roll this out,
we can expect to see more of a catch-up to Shoprite coming through from FY24, she said.
Questions: 1.1 Provide a SWOT analysis of Pick n Pay and Shoprite. (24 MARKS)
1.2 Provide a comparative analysis of the strategies implemented by Pick n Pay and Shoprite,
including in your discussion the risks relating to these strategies. (20 MARKS)
1.3 Shoprite strategy is right on the money (Article 3) Discuss the strategic advantage(s) that
Shoprite possesses, including in your discussion the source(s) of these advantages. (10 MARKS)
1.4 Pick n Pays plan to topple Shoprite (Article 1) Shoprite set to stride ahead by a country mile
(Article 4) Assess whether Pick n Pay has succeeded in its plan to topple Shoprite (11 MARKS)