The Scramble for Africa

Consolidation looms in sub-Sahara

Will Tesco buy Pick n Pay?

Now that the authorities in South Africa have cleared Walmart’s acquisition of a controlling stake in Massmart, the CPG world is abuzz with speculation about further retail incursions into the Sub-Saharan region and South Africa in particular. With reason: retail sales in the country are growing at about 8.2% CAGR, in line with GDP, while consumer spending is set to grow by just shy of 8% in the next five years. Consumer price inflation is just under 6%: the market is ripe for international retailers to introdce EDLP with globalised sourcing and private label. So far, foreign retailers have less than 1% of the market. There seems a lot to play for.

Market gossips report that growth-hungry Tesco is keen to snap up Pick n Pay, which has just entered Mozambique. That may be so, but how likely is it? It’s clear why Pick n Pay would be attractive to Tesco. It’s South Africa’s third-largest retailer (Kantar Retail ranking), behind Shop-Rite and Spar and ahead of Massmart, turning over about ZAR 55 billion (EUR 5.6 billion) annually … It has a solid food offer, a presence in seven African countries and Australia, a couple of million loyalty card holders and a range of formats that could dovetail nicely with Tesco’s multi-format strategy.

Family story

Despite the “good fit”, it is not a foregone conclusion that Pick n Pay would sell. Although the retailer is publicly traded on the Johannesburg Stock Exchange, the company is controlled by the Ackerman Family Trust. Yes, a deal with Tesco might give the family firm the deep pockets and buying power necessary to compete with a Walmart-driven Massmart. But it would surely do so at the expense of its brand. The brand is something that’s vitally important to founder Raymond Ackerman and is something his son, Gareth Ackerman, who took over as chairman of Pick n Pay in 2010, has always appeared to embody.

Since 1967, Pick n Pay has meticulously built its identity as a socially-reponsible family business and a fierce consumer advocate. Outspoken on matters of racial equality, politics, and social mobility – and comfortable with controversy – its brand seems uniquely tied into the personality and values of Raymond Ackerman and his family as members of the South African community. Ackerman is hailed as an icon, a pioneer and philanthropist, unafraid to take on Apartheid and business cartels alike in the name of a fair deal for all. Tesco, good neighbour though it tries to be, cannot boast quite the same bombastic credentials.

If Tesco acquired Pick n Pay, could it wholly embrace Brand Ackerman and keep running the stores as Pick n Pay? That doesn’t really fit with Tesco’s modus operandi – it’s too fond of its own brand and I’d expect to see the multi-format model rolled out, along with its excellent Tesco-branded private label. Surely that would be the whole point. But could it wholly obliterate the Pick n Pay story, rebadge everything and start with zero goodwill, as it did with Fresh and Easy in the US? That doesn’t seem right either: there might be a backlash and then there would be all those Pick n Pay franchisees to bring on board. Yet, some kind of clumsy brand mash-up, à la Tesco Lotus, seems to offer the worst of both worlds. All options would therefore carry risks for the UK giant, whose success abroad has not been universal.

For many reasons, I prefer Shoprite for Tesco in South Africa and beyond. True, the core grocery stores come with some baggage, including 112 “Hungry Lion” fast food outlets and 224 homeware and furniture stores. But the fast food business could be sold and Tesco has been adept at running diversified non-food formats. Controlling shoprite would put Tesco in a top-two position in grocery in 12 African countries and a top-three position in a further four. While it doesn’t have the showing in apparel that Pick n Pay does, Shoprite’s multi-format approach is an equally good fit and Tesco could teach Shoprite a thing or two about running convenience, which the South African retailer can’t seem to grow. I don’t see the same brand conflict here either. The only stumbling block might be the price: Shoprite turns over about ZAR 74 billion, making a controlling stake a far pricier proposition than Pick n Pay.

Legacy

In the end, if Tesco really does want Pick n Pay, its ambition will depend on whether the Ackerman clan can make its collective peace with the idea of a sell-out. While I can see the long-term business advantages such a tie-up would bring them, I can equally imagine Raymond putting his foot down.

Raymond Ackerman turned 80 this year and his current official title is “Advisor”. I wish Mr Ackerman a long and merry life, but should he one day move on, the redoubtable patriarch could still influence decision-making at Pick n Pay from the other side: at a trade event I once witnessed him promise to “come back and haunt” his sons if they ever compromised the company’s philanthropic goals.

I do believe he meant it, too.

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