HOPEFULLY I will soon be reporting back on developments at what I reckon is going to be a very important annual general meeting (AGM) for retail giant
Pick n Pay Stores [JSE:PIK].
It's the first Pick n Pay AGM where retail doyen
Raymond Ackerman – to all intents and purposes the face (and character) of Pick n Pay – does not officially preside.
It's a new era, and unfortunately Pick n Pay enters its second generation of Ackerman family ownership looking somewhat shaky, conspicuously lagging its main supermarket rivals in terms of profit performance.
Ackerman – who still chairs pyramid holding company Pick n Pay Holdings (Pikwik) and acts as a roving ambassador for Pick n Pay – will presumably be present at the AGM. But he certainly won't loom large as in previous years.
In any event, I will be focusing my attention on recently appointed Pick n Pay chairperson
Gareth Ackerman, who looks set to field some difficult questions from shareholders.
Now quite a lot has been made in the media about the allegedly exorbitant fees proposed as a payment to the chairperson and re-payment of back-dated costs linked to Pikwik. Indeed, these questions may induce a little perspiration above the brows.
But in my mind, the big question shareholders need to ask is around Pick n Pay's all-important trading margins.
Retail margins are notoriously thin, and supermarket giants, for all their billions of rands in turnover, make just a few cents on every rand spent at the tills.
In March 2009 – on the occasion of
Raymond Ackerman's farewell – a rather startling statement was made about Pick n Pay's margins.
Ackerman intimated there was a definite limit on how much Pick n Pay could fatten its trading margin. Noting that rival Shoprite had shifted its margin to 5%, Ackerman suggested he would not want Pick n Pay's margin to extend beyond 3% to 3.5%.
If my ears did not deceive me, on the day Ackerman actually said: "I would not, in today's climate, want to make a trading margin of 5%. I would knock it down."
When I reported Ackerman's margin comment on Fin24 there was an interesting response from some of my regular correspondents.
Crowd pleaser or official strategy?One – who happens to be a Pick n Pay shareholder – suggested Ackerman (bearing in mind there were a number of hacks representing a variety of media assembled at the farewell function) was merely talking for the record. In other words, the margin call was Ackerman's parting shot – a bit of spin to reinforce Pick n Pay's claim of being a retailer who really cares about customers getting the lowest prices.
Others were a tad more worried. Was Ackerman's comment about maintaining a 3% to 3.5% margin range part of the official company strategy?
If so, one has to assume Pick n Pay believes it can manage the delicate balance between meeting the needs of demanding shoppers and demanding shareholders. Perhaps lowering margins will win the market share battle, allowing Pick n Pay to build margins over the longer term.
But it would also be quite easy to interpret the self-imposed margin range as a dangerous capitulation in the increasingly tense rivalry with SA's other supermarket giant, Shoprite – especially with Pick n Pay's margins recently slipping below 3%.
If
Whitey Basson, the darling of SA retail, can squeeze 5% out of Shoprite's margins, why is Pick n Pay placing self-imposed limitations on its margins?
Surely Shoprite is not profiteering with its fat margin? Surely a large part in securing a 5% margin is the fact that Shoprite is a lean and tightly-run operation?
There are lots of questions in my mind, and I'm not even a Pick n Pay or Shoprite shareholder (although I confess to shopping at the former).
I certainly hope a shareholder does raise the trading margin question at the AGM, and I sincerely hope that the new Pick n Pay chairperson can give convincing answers.
- Fin24.com