Discount stores

South African retailer Pick n Pay expands into discount stores

South African retailer Pick n Pay could double its Boxer store count to 600 within five years to target underserved low- and middle-income shoppers, said David North, head of corporate strategy and affairs , at The Africa Report.

“Growth will be in the mid to low value segment,” says Cape Town-based North. The new stores will be spread across South Africa and target shoppers in person rather than online, he adds. Boxer offers a limited range of discount products and since August customers can make bank account deposits at stores.

African retailers have an adjustment strategy to adapt to changes in consumer behavior induced by COVID-19. Jumia has tried to increase the number of cashless transactions done on its e-commerce platform.

But analysts such as Landry Djimpe, managing partner at Innogence Consulting in Paris, have argued that e-commerce is hampered by its cost structure, the size of addressable markets in Africa, and preferences for physically inspecting goods before buying. .

Retailing of bricks and mortar still has room to grow. A Renaissance Capital study in September says Pick n Pay is “well positioned in the current recessionary environment” with its “defensive food retail offering, strong balance sheet and disciplined management of capital.” Boxer stores, which contributed around 10% of the company’s South African supermarket sales in 2019, are expected to outperform given their discount offering as customers sell lower, the note said.

  • Pick n Pay on October 20 reported a 56% drop in earnings per share in the six months leading up to the end of August.
  • Nonetheless, core retail sales in South Africa, excluding alcohol, clothing and tobacco, grew 6.4% like-for-like.
  • About two-thirds of Pick n Pay’s business still involves middle- to high-income customers, and South Africa still has a “shopping center culture,” says North.
  • But, he adds, the days of GDP growth rates of 5% or more that underpinned the increase in high-end shopping are long gone.

Social grants, Nigeria

COVID-19 hasn’t really changed Pick n Pay’s strategy, North says. South Africa’s urbanization process means that the formal retail market will continue to grow “with or without” the pandemic. The long-term trend, he says, is for customers to visit local convenience stores more often than to go to a department store. The key, he adds, is to “treat the aspiring customer with respect.”

Part of this is managing attendance during a pandemic.

  • North questions how South African welfare payments, which can be collected at retail stores, are aggregated at the end of the month.
  • Payment dates have been staggered to some extent, but North says they are still “irregular and more can be done to stagger them.”
  • This would reduce the risk of the spread of COVID-19 when people go to stores to pick them up, as well as the dangers of theft.
  • “There is no reason for everyone to receive the payments at the same time. “

Pick n Pay will open its first store in Nigeria in Lagos next month with local partner AG Leventis. If the exchanges go well, other stores will follow.

  • North says these small-scale moves, rather than flagship department stores, are the way forward for overseas expansion.
  • The Lagos store will be “small enough”, will not be in a large shopping center, and will target middle-income customers. “We won’t bet the farm on this.”

Conclusion: Discount stores offer a more reliable route for retail growth in post-COVID Africa than e-commerce.

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