Pick n Pay turnaround finally gaining traction

Share current article via EmailShare current article via FacebookShare current article via TwitterShare current article via LinkedInThabiso MochikoOpens in new windowOpens in new windowEnter fullscreen mode displaying this image.ExpandPick n Pay CEO Sean Summers. Picture: Supplied Story audio is generated using AI

Three years after Sean Summers returned to rescue Pick n Pay, the retailer is finally showing convincing signs that its turnaround strategy is working. Losses are narrowing, margins are improving, costs are coming under control, and the balance sheet has been rebuilt.

Yet the latest interim results also highlight how far the retailer remains from restoring sustainable profitability. The core supermarket business is still loss-making, sales growth remains subdued, and competitors continue to pull ahead through investments in stores, digital platforms and loyalty programmes.

Summers argues that the turnaround should be judged by the actions that ultimately drive profits, rather than the profit itself. “Everybody is so focused on the profit and getting back into profitability, and quite rightly so. But that is a whole lot of actions that need to be taken initially. You don’t return to profit and then start doing all of the good stuff after that. The profit flows from that, and that is the journey that we’re on.”

The six months to August showed progress in many of the areas management can directly control. Gross margins improved, expenses were tightly managed, and losses narrowed materially.

Justin Hollis, portfolio manager at Abax Investments, said the results provided evidence that the recovery was gaining traction. “Pick n Pay’s H1 2027 results provide evidence that its turnaround is gaining traction, with improved gross margins, disciplined cost control and a narrower core supermarket loss.”

But he noted that growth remains heavily reliant on Boxer, while the legacy supermarket business continues to struggle. “Pick n Pay supermarkets’ turnover was broadly flat at R36.4bn, and the trading loss after lease interest still substantial at R1.1bn, highlighting the scale of the profitability challenge.”

Boxer has become the group’s earnings engine and has played a pivotal role in restoring financial stability. Net cash has climbed to about R10bn, compared with net debt of roughly R11.5bn three years ago.

One of the most significant takeaways from the results is that most of the improvement came from cost control and margin expansion rather than stronger sales. Stephan Erasmus, investment analyst at Anchor Capital, said investors should not overlook that distinction.

Group turnover by segment He said Pick n Pay’s half-year performance was “better, but Pick n Pay is still losing money”. He added: “The headline loss narrowed by about a third, driven by margins and cost control rather than sales, which were essentially flat.”

Summers maintained that underlying sales trends were more encouraging than headline numbers suggest. He said Pick n Pay’s like-for-like sales continued to outperform the broader market despite pressure on household spending and geopolitical uncertainty.

Referring to the conflict in the Middle East, Summers joked that management had planned for a “black swan” event but not an “orange swan”. He said: “We could see that with the breakout in the Middle East, from where we were trending on like-for-like sales and growing solidly and consistently every single period, that all of a sudden that came off.”

Summers estimated the conflict cost the retailer about three percentage points of sales growth. “For every 1% of top-line sales that we lose, we lose about R140m-R150m of income, so it’s obviously material for us.”

Another significant development was the conclusion of labour negotiations and the withdrawal of the Section 189 consultation process. Management has argued that the exercise was not designed to cut jobs but to address inefficiencies in a labour model that had become increasingly inflexible.

“The biggest saving is about flexibility and getting people to work the shifts that we need them to work,” Summers said.

Historically, stores were heavily staffed during quieter weekdays and relied more heavily on temporary workers during busy weekends. The revised agreement will allow experienced permanent employees to be deployed when customer demand is highest.

The biggest saving is about flexibility and getting people to work the shifts that we need them to work

“It lets Pick n Pay put its more experienced people on the floor at weekends, when stores are busiest, rather than relying on temporary labour. That arguably makes for a better shop as well as a cheaper one,” Erasmus said.

The benefits are expected to emerge gradually, with Erasmus estimating that meaningful savings will only begin flowing through from March 2027.

Store economics are also a major focus area. Pick n Pay is seeking to reduce space in outlets that have become too large for current trading levels, negotiating with landlords to reconfigure stores as leases expire. “Too many stores are simply too big for the trade they do,” Erasmus said.

Rather than pursuing aggressive expansion, management is focusing on improving existing stores.“We’ve endured a heavy onslaught [from competitor openings],” Summers said.

“Despite that, and us having less stores, we’ve managed to show the like-for-like growth that we have.”

The retailer is also increasing the proportion of supermarkets it operates directly, moving away from its roughly 50-50 split between corporate and franchise stores. Summers said the mix could eventually shift to two-thirds corporate-owned outlets.

Erasmus believes the strategy makes operational sense because it improves control and simplifies execution but cautioned that acquiring franchise stores consumes cash while the supermarket business remains loss-making.

To drive customer loyalty, Pick n Pay is investing heavily in fresh food and digital channels. The retailer is rebuilding relationships with farmers and suppliers while upgrading produce, bakery and butchery offerings. “We’re doing amazing work on re-establishing proper relationships with farmers again,” Summers said.

Erasmus believes fresh food offers the greatest opportunity to regain market share. “Fresh sales are growing more than twice as fast as sales overall.”

ASAP sales grew about 35% during the period, and the retailer recently introduced a subscription model to encourage adoption.

Meanwhile, Pick n Pay Clothing is refocusing on affordable basics after facing pressure from ultra-low-cost online competitors such as Shein and Temu. While the clothing unit was outperforming a flat market overall, Erasmus said growth was being driven by new stores while sales in existing outlets remained slightly negative.

The retailer’s target remains to achieve break-even in its core supermarket business by 2029. “Pick n Pay is making progress but still has significant ground to cover,” Hollis said.

“The principal upside lies in a successful recovery of the core supermarket business and the continued expansion of Boxer. Earnings forecast risk remains high given the multiple moving parts, the timing of strategic initiatives, as well as the tough macro and competitive environment.”

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