Pick 'n Pay: An Enlightened Family Business

According to founding father Raymond Ackerman, South African retailer Pick 'n Pay is at the forefront of the transition taking place in family-owned businesses. Cutting the link between owning and managing the business means it's easier to make an unbiased decision as to who best to lead the company. And keeping it in the family isn't always the best idea.
Elsevier Food International, Vol. 4, Number 4, November 2001
Pascal Kuipers

It must be difficult for any son or daughter to succeed a father who has founded a successful retail company, and particularly one who is unanimously accepted as a retailing icon. Ambitious relations have to learn to deal with the pressure of being constantly compared to their predecessors and scrutinised as to how they're handling the precious family business. It must be even more difficult, however, to deal with this pressure when one isn't a family member. Sean Summers is in just such a position. In April 1999 he became the new CEO of South African retailer Pick 'n Pay, succeeding founding father Raymond Ackerman. "Clearly, I am well aware that I am stepping into the shoes of one of the world's retailing legends," Summers said back in April 1999. "Our task as the management of Pick 'n Pay is to ensure the long term growth from the very solid base that has been created by the founder and chairman. This task is made easier by the fact that the management team in Pick 'n Pay is undoubtedly the most experienced and dynamic of any in our industry. This business is never about one person, only one team."
Clearly there must be something about Summers that allows him, as an outsider, to bypass the Ackerman dynasty and to take the helm of a traditionally run business in which many family members continue to be deeply involved, albeit at non-executive level.  "In Sean Summers we have the very best. Sean joined us as a young trainee in the 1970s and has worked his way right to the top, excelling at every level," Raymond Ackerman said in April 1999, when explaining that Pick 'n Pay was changing from a family owned and managed business into one that is managed by outside professionals, while still being owned by the Ackerman family. The founder, who remains closely involved as chairman, indicated that, as the gap between owner and manager widened, it was critical that the business was run on professional - rather than family ¬terms. Furthermore, he stressed that the company wasn't putting itself at risk by placing a non-kinsman in charge. "We have taken a great deal of advice from top consultants ... in this until-now-limited field and listened to the counsel of our long-serving board members, before taking the decisive step that will make us 'enlightened owners' of a business managed by professionals."

In the spirit of Vuselela
How best, then, to satisfy the enlightened Ackerman family and confirm the correctness of their choice? Backed by a good performance between 1999 and 2001 - in the last three fiscal years ending 28 February Pick 'n Pay increased sales by 22.4 per cent and more than doubled its net profit (+ 112.3 per cent) - Summers' position is solid. In the mid 1990s, when Summers was still group managing director, he redefined Pick 'n Pay's management structure, basing it on the three key elements of people, service and store environment. In 1996 this renewal of the company's values was given a philosophic perspective by linking it with the idea of VuseIela. This is a Nguni (Zulu) word, meaning 'to rekindle the energy and strength of the people'. Using the Vuselela idea, Pick 'n Pay aims to ensure that each employee realises his or her own potential within the framework of the company. This holds true for not only, say, a checkout operator in a Pick 'n Pay store in Mpumalanga, but for the company's top manager as well. In this respect Summers' appointment as CEO can be seen as Vuselela taken to its ultimate conclusion, giving him the essential credibility that's needed if he's to steer the Ackerman business in the right direction. Indeed, Summers places Pick 'n Pay's company culture on an even higher level, as he compares the VuseleIa-inspired rebirth of his company to the rebirth of South Africa as a democracy.
"The very essence of our initiative is to create a society within Pick 'n Pay that is a mirror-image of what South Africa is trying to become. A society that is just and fair, and accords to all the freedom to pursue their chosen careers," reads Summers' explanation of the company culture on Pick 'n Pay's website, www.picknpay.co.za.
In the CEO's report in Pick 'n Pay's latest annual report, Summers says: "I appeal to all South Africans to help present this country in a positive light in all given opportunities, whether at home or abroad. Let us all play our part in avoiding any negativity that is expressed about our beautiful young country, while maintaining perspective and balance. Let us use the base of positive changes and outcomes already achieved while dealing with the challenges ahead."

Australian Vuselela
Pick 'n Pay took an important step last June when it re-entered the Australian market by acquiring 60 of the total of 287 Franklins stores that Hong Kong based retailer Dairy Farm was selling. Furthermore, Pick 'n Pay acquired 20 stores from Fresco, an independent Australian retailer, in the Sydney metropolitan area. This may prove important in soothing the sense of frustration felt by South Africans when they were boycotted in Australia during the 1980s. In those years, which saw the height of the anti-apartheid movement, Pick 'n Pay set up shop in Brisbane because it hoped to establish a chain of hypermarkets in Australia. Once the Australian trade unions became aware of the South African connection, they put a ban on the construction of any future outlets. Today's re-entry into Australia stems essentially from the Vuselela-inspired rebirth and is therefore important to the company. From a business perspective, its importance lies in the fact that the Australian acquisition equalled one quarter of Pick 'n Pay's total business at that time. This A$125 million (US$ 65.2 million) deal includes 80 stores that have an annual turnover of some A$900 million (US$ 470 million) and related fixed assets, the Franklins trade mark and Franklins' 'no-Frills' brand for the Australian continent. "A problem South African companies have experienced overseas was overpaying for the underlying assets as well as complex financial structures," Summers commented on the Australian deal. "In our case, we are purchasing close to a A$1 billion turnover business with a leading brand name in its target market, plus fixed assets, for an investment of only ZAR 500 million (US$ 65.2 million). This is an extremely reasonable price and, given our experience in the discount retail environment, we believe that we will achieve success in a relatively short space of time." In Australia Pick 'n Pay will trade its 80 stores under the Franklins banner and re-position them as price aggressive 'no frills' discount stores. Concentrating its discount operation in the New South Wales region means Pick 'n Pay will come across the German global hard discounter Aldi, which opened its first store in January 2001 in Sydney and currently operates 17 stores. In a bid to avoid the mistakes of Franklins' former management, it will not upgrade the store positioning, and will avoid direct competition with Australia's main retailers Woolworth's and Coles.
Financial analysts, however, have noticed a few problems in the sidelines for Pick 'n Pay's Australian operation, suggesting that Pick 'n Pay got the least attractive part of the Franklins portfolio, while the best stores were of course snapped up by Woolworth's and Coles. Despite this, however, the Franklins stores that Pick 'n Pay acquired were considered appropriate choices, given its no frills-style operations. "Despite market assumptions, Pick 'n Pay has had the right to pick the stores that it wished to purchase outside of the large Franklins Big Fresh stores: all stores selected by Pick 'n Pay in the purchase package are profitable at branch operating level," stated Summers in May 2001, when he confirmed the already discussed Australian deal. "The 80 stores we have acquired are all trading extremely strongly and are cash positive."
Referring to the experience with Pick 'n Pay's South African discount banner Score, Summers is confident that the investment in Australia will payoff in a short space of time. A low cost operation is imperative for a successful hard discount operation. That's why Pick 'n Pay formed an alliance with the Australian wholesaler Metcash to provide logistical services - a cost efficient scheme since a store base of 80 can not financially justify its own distribution centre. Metcash, though, is a subsidiary of South African wholesaler Metro, which is Pick 'n Pay's largest domestic competitor. "Just a coincidence," says Jonathan Ackerman, Pick 'n Pay's marketing director. "The fact that Metro is a South African company helps the relationship, so in fact the win-win aspect is a cultural one."

Courageous but risky
Pick 'n Pay's cross border expansion is founded on a healthy home-market dominance. Last January Pick 'n Pay reached an all time high domestic market share of 40 per cent. Over the last ten years the company's annual sales and operating profits increased by 11 per cent and 14 per cent respectively. After its acquisitions in Australia, the company structure is based on three separate businesses: Retail, Group Enterprises and Australia, each led by a managing director who reports directly to the CEO.
The Retail division concentrates on Pick 'n Pay's core business, comprising 14 hypermarkets, 109 supermarkets, 82 Family franchise stores, and a home shopping test with three stores acting as fulfilment centres. This division also contains 97 convenience supermarkets under the Pick 'n Pay Mini Market banner, which were formerly known as RiteValu.
The Group Enterprises division manages other group activities, including Africa and New Business, Score supermarkets (78 corporate and 14 franchised discount stores) and 20 Boardmans stores (home-and kitchenware).
This division is also responsible for finding new investment opportunities for the group, whether in South Africa, the rest of Africa or overseas. TM Supermarkets in Zimbabwe, Go Banking (financial services that Pick 'n Pay offers its clientele in co-operation with Nedcor, a South African banking group), E-commerce (in addition to the Pick 'n Pay home shopping test) and property. The Australia division is focused on managing the company's 80 Franklin's stores down under. Before re-entering Australia, Pick 'n Pay was about to start a business in the Philippines in a joint venture with oil company Shell. Early in 1999, however, this plan was cancelled. Australia currently absorbs a lot of its time, but Pick 'n Pay is also expanding cross border closer to its home base. The company is already represented in Zimbabwe, where it operates 50 TM Supermarkets, and in its fiscal year ending February 2002, it wants to set up shop in Namibia and Botswana (in both countries Pick 'n Pay will be the wholesaler for two franchise Family stores), and in Tanzania, where it wants to open five Score discount stores. Furthermore, it is opening stores in Swaziland.
According to Summers, Pick 'n Pay is continuously looking at investment opportunities within Central and East Africa, with Botswana and Tanzania offering promising growth opportunities. The challenge, however, is clearly overseas in New South Wales, Australia, where Pick 'n Pay will face opposition from both Woolworth's and Coles, which have already been put on the offensive by the entrance of German hard discounter Aldi in the same region. "I think that Pick 'n Pay have made a very courageous move," Woolworth's CEO Roger Corbett said in early September. "I think it's quite a risky move for Pick 'n Pay, but they are good operators and we are surely not going to take them lightly. We are going to be very competitive and we'll make sure that they can't do anything for their customers that Woolworth's won't do for theirs in a better way."
Still, Corbett described Pick 'n Pay's increase in overall competition as 'relatively minor; in The West Australian newspaper and said that Woolworth's is focusing on its attempt to beat market leader Coles Myer within two years. Perhaps he's taken heed of Sean Summers' 2001 annual report comment on Pick 'n Pay's strong domestic position: "We are proud of the current market share we hold, being ever mindful of the risk of complacency." For complacency and Vuselela couldn't be further apart.