Pick n Pay means business with African expansion

Africa's second largest food retailer, Pick n Pay, announced its second foray into Africa in two weeks. In line with its blazing African expansion plan, the group last week said it bought 24% of Zimbabwe operation TM Supermarkets, bringing its total shareholding to 49% - a deal worth about US$13 million.

The TM Chain is controlled by Meikles Limited and is the largest chain of retail stores in Zimbabwe by number of stores, with 51 retail outlets.

On Monday (8 November 2010), the Cape Town-based company announced that it had signed a franchise territorial agreement with retail franchising group Retail Masters in Mozambique to further extend its African footprint.

The group currently operates one store in Zambia, seventeen stores in Namibia, twelve in Botswana, seven in Swaziland and one in Lesotho, together with its fifty-one-store network with TM in Zimbabwe.

Last month, at its interim results presentation, Pick n Pay said it would move forward with its expansion into Africa following a successful store opening in Zambia this year.

The group plans to open four more stores in Zambia during the next year, and also plans to open stores in Malawi, Mozambique, Mauritius and Angola.

Pick n Pay's strategy into Africa has mainly been through partnering with locals and the franchise route, where local experts own the franchise in their own communities.

However, there are instances such as with its first store in Zambia, where the company will develop corporate-owned stores.

The group's first Mozambican store will be opened in Maputo and will be approximately 3,000m² in size.

The group said it envisages opening a further three stores before the end of 2011, the first four stores will open in the greater Maputo district.

"It's our intention to ensure that local farmers and suppliers are supported to stimulate and assist economic growth in Mozambique.

Logistically we're using experts who deal with transportation and supply issues into Africa and currently services our Zambian operations.

Naturally one of the main benefits to the local economy will be employment," said Dallas Langman, head of Pick n Pay's group enterprises division.

Among SA's big retailers, Pick n Pay has the smallest portfolio outside of South Africa, while Shoprite has the largest African presence - trading in Angola, Botswana, Ghana, Lesotho, Madagascar, Nigeria, Zambia, Namibia, Zimbabwe, Uganda, Tanzania, Swaziland, Mozambique, Mauritius and Malawi.

Pick n Pay's expansion into Africa will also be made easier now that the retailer has established a centralised distribution system. The company was the last of the country's big grocers to roll out centralised distribution when it opened an expanded warehouse in Longmeadow in July.

Already very commonly used overseas, organising supply chain through central distribution essentially allows suppliers to deliver to distribution warehouses, allowing for goods to then be delivered to individual stores.

Analysts last month said that the group's African expansion plans would not solve its local operational issues.

"They really need to focus on their South African operations before running off into Africa - it won't solve the problems they're already faced with over here," said a retail analyst.

Pick n Pay reported a fall in diluted headline earnings per share for the six months ended August 2010 to 73.74 cents from 84.63 cents.

The group's gross profit margin also fell from 18.0% in 2009 to 17.8%, while trading profit was down to R720.3 million from R723.3 million for the period under review.