Pick 'n Pay Stores Ltd.

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Pick 'n Pay Stores Ltd.

PO Box 23087, Claremont
Cape Town, 7735
South Africa
Telephone: (27) 21 658 1000
Fax: (27) 21 683 2514
Web site: http://www.picknpay.co.za

Public Company
Incorporated: 1968
Employees: 34,484
Sales: ZAR 35.08 billion ($4.48 billion) (2006)
Stock Exchanges: Johannesburg
Ticker Symbol: PIK
NAIC: 445110 Supermarkets and Other Grocery (except Convenience) Stores; 445210 Meat Markets; 445292 Confectionery and Nut Stores; 445299 All Other Specialty Food Stores; 551112 Offices of Other Holding Companies

Pick 'n Pay Stores Ltd. is South Africa's leading food, clothing, and general merchandise retailer. The Cape Town-based company has long been a champion of "consumer sovereignty," focusing primarily on the discount retail market. Pick 'n Pay operates through a number of retail formats, including 14 Pick 'n Pay hypermarkets and 106 Pick 'n Pay supermarkets. The company also operates the Pick 'n Pay Pantry convenience store format, as well as franchise grocery operations under the Pick 'n Pay Family format; more than 130 Score retail stores throughout South Africa, as well as in Botswana and Swaziland; and a small number of stores in Namibia.

In addition, the company owns the Franklins supermarket group in Australia. In June 2006, Pick 'n Pay expanded its South African presence again with the acquisition of Fruit & Veg City, which operates nearly 90 company-owned and franchised stores throughout South Africa. The company also has extended its range of customer services with the creation of the Go Banking joint venture with Nedbank. Listed on the Johannesburg Stock Exchange, Pick 'n Pay remains controlled by founder and Chairman Raymond Ackerman, and Sean Summers serves as CEO. In 2006, the company's revenues are expected to top ZAR 35 billion ($4.4 billion).

SOUTH AFRICA'S RETAIL REVOLUTIONARY IN 1967

Raymond Ackerman was born in 1931 into one of South Africa's leading retailing families—father Gus Ackerman had founded the Ackermans department store chain in 1916. Raymond Ackerman studied commerce at the University of Cape Town under noted economist W.H. Hutt. Hutt's ideas, particularly his philosophy of "customer sovereignty," were to have a lasting impact on the young Ackerman.

Having graduated from University, Ackerman went to work for his father's business as a trainee manager in 1951. Ackerman's first position with his father's company, however, was as a store greeter. In this way Ackerman's father hoped to instill the importance of politeness for the store's customers, while also helping Ackerman overcome his shyness. Ackerman later worked for two years in the company's distribution warehouse.

By then, Ackermans had been bought by department store rival Greatermans, based in Johannesburg (and which reportedly took its name from its ambition to be greater than Ackermans). Raymond Ackerman was offered a new position at Greatermans, and served as manager at a series of small-town stores into the mid-1950s. The introduction of the first American-styled self-service supermarkets in the early 1950s inspired Greatermans to expand into food retailing as well. The company added a supermarket to its Springs store, placing Ackerman in the store as assistant manager.

The experience proved a life-altering one for Ackerman, who found his true calling in food retailing. Persuaded by the potential of the supermarket format in South Africa, Ackerman encouraged Greatermans to launch its own supermarket format, called Checkers, in 1955. Two years later, Ackerman and wife Wendy traveled to the United States to study the supermarket sector more closely. There, Ackerman took a decidedly hands-on approach, working for some six months in nearly every area of the supermarket operation—from stocking shelves to serving in the butcher section. During his U.S. trip, Ackerman also met up with Bernard Trujillo, the so-called "Pope of Modern Distribution," who held that customer sovereignty represented an "enlightened form of self-interest." Trujillo became, alongside Gus Ackerman and Hutt, another major influence in Ackerman's rapidly evolving retail philosophy.

Upon returning to South Africa, Ackerman set out to build the Checkers chain. Yet Ackerman ran into a great deal of resistance from the Greatermans board, which saw the company as a department store group, not a supermarket company. While lacking a free hand to develop the Checkers format—and especially to implement his own retail philosophy—Ackerman nonetheless succeeded in expanding the chain from just five stores at the beginning of the 1960s to more than 85 by 1965. In that year, Ackerman shared an award—as the Outstanding Young South African—with Gary Player. Indeed, by then, the Checkers chain not only had become a leading supermarket group in South Africa, it also had begun to outpace Greatermans itself.

The success of Checkers, however, led to soured relations between Ackerman and the Greatermans board. As Ackerman himself told the Sunday Times, "It reached a point where there was a jealousy factor. It was like the tail wagging the dog." The situation came to a head in 1966 with the death of Gus Ackerman, who had served as a director at Greatermans. Within two weeks, Raymond Ackerman found himself fired from Greatermans, given just two weeks' severance pay.

Yet Ackerman soon turned this setback into a new opportunity. In early 1967, Ackerman returned to Cape Town and negotiated to acquire four small stores, called Pick 'n Pay, from Jack Goldin (who then founded the Clicks retail group in 1968). Now the owner of his own stores, Ackerman was able to put his retail philosophy fully to the test and set out to become "the housewives friend." A key component in Ackerman's formula was his insistence on discount pricing, enabling him to undercut his competitors. In order to pay for the stores, Ackerman invested most of his own money, while raising the remainder of the funding from a small group of shareholders. By 1968, however, the company had gone public, listing its stock on the Johannesburg Stock Exchange.

Success came quickly—by the end of its first year, Pick 'n Pay Stores Ltd. had already topped ZAR 5 million in sales, turning a profit of more than ZAR 300,000. By the following year, the company had doubled its sales. Pick 'n Pay's success, however, caught the attention of rivals Checkers and OK Bazaars (which had introduced the self-service supermarket format to South Africa in the early 1950s). The two companies started a price war in order to slow the growth of Ackerman's chain.

COMPANY PERSPECTIVES

OUR MISSION: We serve. With our hearts we create a great place to be. With our minds we create an excellent place to shop. OUR VALUES: We are passionate about our customers and will fight for their rights. We care for, and respect each other. We foster personal growth and opportunity. We nurture leadership and vision, and reward innovation. We live by honesty and integrity. We support and participate in our communities. We take individual responsibility. We are all accountable.

Instead, Ackerman leapt at an opportunity to acquire a new store in Port Elizabeth, allowing the company to enter the Eastern Cape market. The move forced Checkers and OK Bazaars to choose between expanding the price war they had launched, or withdrawing. In the end, Pick 'n Pay's rivals chose the latter, and the Cape Town company began its ascension to becoming South Africa's leading retail group.

HYPERMARKET PIONEER IN 1975

Pick 'n Pay quickly captured the attention of South Africa's financial community as well. By the end of the decade, the company had begun receiving praise from the financial press, and soon was named to the Sunday Times ' Top 100 companies list. Ackerman's commitment to consumer sovereignty remained a major component of the group's success, helping to guide its operations. In this way, the company started to take on the wholesale sector, dominated by a number of government-backed cartels that had helped maintain artificially high prices on most goods sold in the country, including basic food items. Ackerman found ways to skirt the high prices, often imposed by the South African government itself. A notable example of this came early in the 1970s when Ackerman took the company's entire treasury to buy a warehouse full of cigarettes. When the government imposed price increases on new cigarette imports, Pick 'n Pay was able to sell its stock of cigarettes at a substantial discount.

Pick 'n Pay continued to expand beyond the Cape Town region. Its move into the important Johannesburg market was met with resistance, however. The company's own survival appeared at stake, after a suspicious fire destroyed its first Johannesburg store, in Blackheath. Ackerman also blamed the fire as the cause of his mother's death. As Ackerman told the Financial Mail: "This was a devastating event, not just because it could have caused the demise of the fledgling Pick 'n Pay chain, but because it probably also contributed to the death of my mother. She had warned me that the company was growing too quickly and she died while reading the account of the fire in the newspaper."

Yet Ackerman seemed only the more determined to impose his retailing vision on the South African market. In 1973, the company announced that it would be building the country's first "hypermarket." The new large-scale format, which combined department store offerings with supermarket operations, had been developed in France by the growing Carrefour department store group—the leaders of which had also been inspired by Trujillo's retail ideas. Pick 'n Pay opened the doors of its first hypermarket in 1975, smashing all previous sales records.

With Pick 'n Pay's rise to the top of South Africa's retail scene in full swing, Ackerman next attempted to expand the company's format into a new market, entering Australia with a highly successful store in Brisbane in the early 1980s. Yet the company's attempt to open a second store in Melbourne in 1984 became caught up in the growing international resistance to South Africa's apartheid policies. Ironically, Pick 'n Pay itself had long served as a model anti-apartheid group—indeed, the company had long been a champion of South Africa's own anti-apartheid movement. Long before the end of apartheid, the company's management had been fully integrated, with some 50 percent of all management positions held by black South Africans.

Forced to withdraw from Australia, the company licked its wounds by expanding its South African retail presence, acquiring the Boardman's hardware chain in 1984. The purchase helped raise the company's profile, and boost sales to more than ZAR 2 billion by 1986—more than doubling sales in just three years. The company continued to build the Pick 'n Pay chain as well, and by the end of the decade, the company operated more than 100 stores throughout the country.

KEY DATES

1967:: Raymond Ackerman buys four stores in Cape Town and establishes a discount supermarket format.
1968:: Pick 'n Pay Stores Ltd. goes public with a listing on the Johannesburg Stock Exchange.
1975:: Pick 'n Pay launches South Africa's first hypermarket.
1984:: After opening a store in Brisbane, Pick 'n Pay is forced to exit the Australian market; Boardman's hardware store chain is acquired.
1994:: A new corporate culture and structure is developed following an extended strike by employees; the Family franchise supermarket format is launched.
2002:: The company purchases Franklins retail group in New South Wales, Australia.
2006:: The company acquires Fruit & Veg City, with nearly 90 stores throughout South Africa.

SOUTH AFRICAN RETAIL LEADER IN THE NEW CENTURY

Despite its progressive policies, Pick 'n Pay was again caught by the political environment as apartheid came to an end. In 1994, the company found itself faced with a strike by its employees. Yet Ackerman turned this crisis into an opportunity for renewed corporate growth. The company worked out a new trade union agreement, but, perhaps of more importance, set into place a new corporate culture to guide its entry into the new century. At the same time, the company established a new organizational structure, based on two core divisions: Retail, which took over the various Pick 'n Pay formats, as well as the Family franchise store format launched in 1994, and others; and Group Enterprises, which took over the company's acquisition of a majority stake in the predominantly rural-based Score supermarket group, as well as other retail businesses. Increasingly, Pick 'n Pay also targeted international expansion, adding stores in the neighboring markets of Botswana, Swaziland, and Namibia. The company also briefly entered Tanzania, but sold its holdings there in 2002.

Instead, the company targeted a re-entry into the Australian market, buying up struggling retailer Franklins there. The purchase brought the company more than 50 stores under the Franklins and No Frills formats, primarily in the New South Wales market. Despite the continuing losses of its Franklin division into the mid-decade, in 2006, Pick 'n Pay reaffirmed its intention to maintain its Australian presence.

Pick 'n Pay in the meantime continued to expand its presence in South Africa, with a steady stream of its new store openings. The company also maintained its commitment to customer service, launching in 2005 a partnership with Nedbank to launch GO Banking, an in-store banking service that featured checking and savings accounts customers could literally buy off the shelf. The following year, the company expanded its South Africa retail presence yet again, agreeing to acquire Fruit & Veg City, a chain of nearly 90 stores throughout South Africa. After nearly 40 years, Pick 'n Pay remained true to its philosophy of customer sovereignty—and continued to reap its rewards.

PRINCIPAL SUBSIDIARIES

Boxer Fresh Meats (Pty.) Ltd.; Boxer Holdings (Pty.) Ltd.; Boxer Superstores (Pty.) Ltd.; Franklins Pty. Ltd. (Australia); Franklins Supermarkets Pty. Ltd. (Australia); Fresco Supermarket Holdings Pty. Ltd. (Australia); Guardrisk Insurance Company Ltd.; InterFrank Group Holdings Pty. Ltd. (Australia); KwaZulu Cash & Carry (Pty.) Ltd.; Mfolozi Properties (Pty.) Ltd.; Pick 'n Pay (Gabriel Road) (Pty.) Ltd.; Pick 'n Pay Franchise Financing (Pty.) Ltd.; Pick 'n Pay Garages (Pty.) Ltd.; Pick 'n Pay Insurance Company Ltd.; Pick 'n Pay International Ltd. (U.K.); Pick 'n Pay Namibia (Pty.) Ltd. (Namibia); Pick 'n Pay Retailers (Pty.) Ltd.; Score Supermarkets (Botswana) (Pty.) Ltd.; Score Supermarkets (Swaziland) Ltd.; Score Supermarkets (Trading) (Pty.) Ltd.; Score Supermarkets Operating Ltd.; The Blue Ribbon Meat Corporation (Pty.) Ltd.