PICK n Pay's fortunes have been in decline since 2009. The problems at South Africa's second-largest retailer are not entirely related to the global economic crisis or increases in the costs associated with trading, such as electricity and fuel. If that were the case, competitors such as Shoprite, Spar and Woolworths would have posted similar results.
Still, the numbers tell only part of the story - a walk into a Pick n Pay store reveals some of the other issues affecting the retailer. Staff members who have lived through generations of Pick n Pay management wax lyrical about the old regime - it takes only a few minutes before the name of founder Raymond Ackerman comes up. As the story goes, Ackerman used to visit the stores regularly and knew everyone by name. He made staff happy. But, along the way, something changed and it is apparent that Pick n Pay's staff are no longer happy - from the surly cashiers to the grocery department staff that customers struggle to find. There are, of course, exceptions but it is precisely this inconsistency that encourages some customers to buy their food elsewhere.
Management has repeatedly applied only Band-Aids to the problems.
In recent years, Pick n Pay has begun to do the right things, including building and extending distribution centres and improving information technology (IT) systems. It has got rid of its unprofitable business in Australia. And the introduction of its loyalty card, Smart Shopper, has worked.
However, the company is still trying to arrest declines - it is playing catch-up in an increasingly competitive and fast-paced retail environment. Most retailers have already squeezed supply chains by sourcing from abroad and simplifying logistics via distribution centres. Now real-time retailing is the new strategy, with store operations connected to upstream supply chains. This enables retailers to know what customers want, at which store, and in which colour.
Herein lies part of Pick n Pay's problem: why was it so late to adopt new technologies? Why was it slow in getting its distribution centres and IT systems in place? Some clues can be found in this family-owned business's structure and culture.
In his book The Four Legs of the Table: Raymond Ackerman's Simple Straightforward Formula for Success, Ackerman details the problems Pick n Pay experienced in the early days and the solutions that allowed it to grow to become South Africa's second-largest supermarket chain. It is here that we get an idea of the ethos and the ideas that the company was built on and, in a way, the seeds of its future mistakes.
Administration is to a business what a foundation is to a home, Ackerman says. It is often seen as the least glamorous aspect yet it is the foundation that ensures that the rest of the organisation is able to function. Nothing wrong there.
Pick n Pay, he says, is not here to maximise profits but to maximise customer sovereignty. Investors may not agree, but the statement is a noble one. It is when the founder begins to talk about warehousing that the waters start to get murky. Pick n Pay was late to the centralised distribution party. Ackerman says the company knew it was the best solution but failed to get it done because of costs. Now, 15 years later, it has had to address this issue at an even higher cost.
His theory that decentralised organisations were able to respond rapidly was correct then but unfortunately is not now. Experts have pointed out that it costs Pick n Pay about R9 to move a box from a supplier to a store - the same box costs Walmart $0,25 to shift in the US. It is not only about building distribution centres, it is also about looking at the whole cost-allocation model.
The obvious solution to the problem is more investment and to partner with vendors to find better solutions. Coca-Cola, for example, knows how to move goods cost-effectively across Africa. Others have suggested rationalisation is needed - that the company has too many different brands of the same product and that it seems to be buy-focused, not sell-focused. The retailer needs to look at the performance of all its products, not categories of products.
One industry expert has said Pick n Pay's distribution plan was ill-conceived and attempting to keep investment low in the long term was not a good idea. Another telling view, on talent management, is expressed in the book: "At an interview, only the good is on view and the warts remain firmly under wraps - a sound reason for promoting from within," Ackerman says. But critics believe the group needs a leader from outside the organisation to speed its recovery. For a company on its back foot, the CEO position at Pick n Pay is possibly the hardest retail job in the country right now.
Last February, then CEO Nick Badminton called the ending year the most difficult trading period in the group's history. Yesterday, he was not around to tell last year's woeful tale, having resigned in February. With no captain and a demotivated crew, it's hard to see this ship sailing any time soon.
Deputy CEO Richard van Rensburg has been described as an IT man as opposed to a retailer. This could be positive for a company that seems to have struggled with the science of retailing. Still, it seems, a new CEO is needed and it would be best if this person did not come from within the organisation.
Another problem for Pick n Pay is US giant Walmart's entry into South Africa. Pick n Pay in its current form is not ready for Walmart and the world's largest retailer could rapidly erode Pick n Pay's market share.
In addition, the group's dividend policy needs to be reviewed. Continuing to pay a large dividend while the company isn't performing has not served it well.
Some have questioned Pick n Pay's real estate strategy, saying the company has not focused on where its stores are located - or the appropriate products for particular stores. Others have suggested that the company has done the right thing by building new infrastructure - but that it has not sufficiently changed its thinking to go with the changes. Despite new IT systems and its extended Longmeadow distribution centre, the criticism is that management is not using the knowledge the new systems bring.
There is work to be done on existing stores, on service and on the inconsistent pricing and supply of stock.
Change involves a shift in mind-set - from the cashier to the chairman. Culturally, Pick n Pay needs a huge change.
As the business of retail becomes more scientific, will Pick n Pay be able to embrace change? As consumers come under pressure from rising fuel, electricity and food costs, will they vote with their feet? As their needs change, will Pick n Pay again evolve with them and attend to those needs? Will Pick n Pay once again make the customer sovereign? Can it give them what they need, when they need it and in the form they need it? Today, the answer has to be: not exactly.
Chairman Gareth Ackerman has suggested that many critics have not taken note of the change programme that has been under way since 2007. And yes, the company has implemented many strategies to right the ship. But the first step - one that the market and customers are waiting for - is still to halt the decline.
. Vallie is retail industries correspondent.