Pick n Pay job cuts 'highlight litany of errors
Jul 07 2011
Retail Wrap >>

The intention by Pick n Pay to retrench more than 3,000 employees has underlined the seriousness of the situation that the group has found itself in as it tries to play catch-up to rivals after a series of errors made by the group over the past few years, according to an analyst.

"A lot of what's happening with Pick n Pay is the culmination of a confluence of strategic errors that opened the door for Massmart - entering Australia, not concentrating on general merchandise in their hypermarkets, not putting in centralised distribution timeously and not keeping ahead of the pack with IT," said Absa Investment analyst Chris Gilmour.

The retailer on Wednesday announced it was contemplating the retrenchment of about 3,137 workers within its non-management bargaining unit - a decision made in the face of major problems facing the company in respect to declining profitability and the loss of market share to Shoprite and Woolworths.

"This is obviously something they didn't want to do. They left it to the absolute last moment after they tried everything they possibly could," Gilmour said.

Once the leader of the South African retail pack, Pick n Pay has increasingly come under fire for its "ludicrously high" costs, industrial action issues and lagged growth.

"Their cost base is rising far faster than their revenue base. People do tend to be the biggest slice of costs and unfortunately Pick n Pay is in the situation where it has to look at this [retrenchments]," Gilmour said.

Pick n Pay operations director Neal Quirk said that the decision was not taken lightly but was required to ensure the viability of its retail business and its employees.

Quirk told BusinessLIVE that the company had issued the South Africa Commercial, Catering and Allied Workers Union (Saccawu) with a letter in accordance with the Labour Relations Act.

"We have requested confirmation of meeting dates in order for us to consult with Saccawu," he said.

According to Gilmour, Pick n Pay has for many years had an enlightened view towards its employees.

"They've been the best payers in the industry, with the best benefits. So it must have hit really hard for them to do this," said Gilmour.

A spokesperson from Saccawu told BusinessLIVE that the union would do everything in its power to defend jobs. The union represents about 20,000 Pick n Pay employees.

The group's attention in recent months has been directed on its African expansion plans, which according to Gilmour was a good move.

"They have to look at Africa. Our local market is on its way to being saturated. The kind of growth they'd get in Africa easily eclipses the kind they get in SA," he said.

Pick n Pay opened its first store in Maputo, Mozambique, in June. The group operates two stores in Zambia, 17 in Namibia, 12 in Botswana, seven in Swaziland and one in Lesotho, together with its 51-store network with TM Supermarkets in Zimbabwe.

Among SA's big retailers, the group has the smallest portfolio outside SA, while Shoprite has the largest.

Pick n Pay has also been preoccupied with its 1.5 billion rand sale of Franklins to Sydney-based Metcash.

Regulatory issues are still stalling the sale, which was meant to help fund the group's capital expenditure programme. The sale of its 80 corporate stores and eight franchise agreements in Australia was announced in July last year.

"It's a pity they got side-tracked by going into Australia. Twenty years ago Pick n Pay was well in the lead. Now what they're doing is playing catch-up at a frantic pace," Gilmour said.

Source: www.businesslive.co.za, 7 July 2011

Compliments of the UCS Retail Academy Team