WorldWideMarkets — Episode 690

Pick n Pay has stopped bleeding, but hasn’t started healing

Host: Simon Brown Recorded: Tuesday 11 August 2026 | Published: 12 August 2026 Runtime: 18:13 Sponsor: Standard Bank Global Markets Retail, and Shyft

Cleaned transcript. Stutters, repetitions and filler removed; names, tickers and figures corrected. Simon’s phrasing and voice preserved throughout.

Simon Brown (00:01)

WorldWideMarkets this week: Pick n Pay has stopped bleeding, but hasn’t started healing.

I’m Simon Brown. This is WorldWideMarkets episode 690 for 12 August, recorded Tuesday late afternoon. Slightly shorter show today — I’m a little under the weather, and it is so cold out there that as a Durban boy, my brain is not working as perhaps it would normally.

WorldWideMarkets, powered by Standard Bank Global Markets Retail, and Shyft — the global money app that puts travel, shopping, payments and investments in the palm of your hand. Enjoy the cheapest forex rates anytime, anywhere. Shyft, powered by Standard Bank. Thanks to Standard Bank. Thanks to Shyft.

There is the move happening from OST to Shyft. A couple of you have messaged me and said you haven’t got any information, and therefore you’re not moving. I’m not in this cohort either. If you’ve got a warrants account, if you’ve got linked accounts, if you’ve got structured products, if you’ve got AutoShare Invest — you’re going to be in the next tranche. Don’t worry, they will get to you.

Pick n Pay’s trading update: the numbers (01:06)

But today I want to look at Pick n Pay, and I want to go fairly deep on it. They had a trading update last week that on the surface I thought kind of looked okay. And of course, I am a Shoprite shareholder. We’re going to have Shoprite results on the first of September; Pick n Pay about a month after that.

The update was fine. The trajectory, I’m not so sure. The break-even has been kicked down twice. The turnaround has been funded by selling assets — and that’s the part, Boxer is the part of the business that works. And of course they’ve got the labour restructuring.

On that trading update, which was 20 weeks to 19 July, released last week: on the surface it looked okay, but take Boxer out. Then you’ve got the Pick n Pay segment flat on turnover, and like-for-like is 2.6%. Pick n Pay SA supermarkets is actually down 0.4% on turnover. Clothing, nice, 3.3% higher — but like-for-like is actually down a little, 1.3%. And online, which is Mr D and asap!, is up 37.5%. Nice, but off a low base, I suppose. Management does talk about market conditions remaining highly constrained, soft growth, and so on.

Signs of life: has the customer bleed stopped? (02:25)

A couple of things really stood out for me. The good bit is small, but it is real. SA like-for-like of 1.9% against food deflation means volumes are flat to moderately positive. Alec Abraham at Otto1890 said there are signs that they have stemmed the outflow of customers.

That’s a biggie. They’ve been losing customers. Two years ago they were absolutely losing customers. If they can stem that, that’s an important step. Now they’ve got to start growing customers. It’s a good place to be.

Turnover in the core is still going backwards. Not a good thing. Management says this is a store estate reset. Fair shout — we need to see that coming through, and we’ll get more colour at results.

And then it really is Boxer’s like-for-like that is the number nobody went with: plus 2.2%. The headline is up 7.2%. So in other words, five percentage points were basically new trading space. In other words, even Boxer is up only 2.2% — when you think that Shoprite and Usave did 5.1%. Okay, that was a different period. Checkers is 8.9%; that was to December. So maybe not quite fair. But quite frankly, Boxer is winning in its segment to a degree, but I don’t think it’s as obvious as it looks. And I think Usave might be coming for it. And I think Shoprite might too. I’m a Shoprite holder, so I’m comfortable with that.

Those are some of the really important points that we need to understand: this remains tough out there. And if we look at the results, which was the full year to the first of March — I mean, there wasn’t a lot to love. The Pick n Pay segment was a one billion rand loss. That was up from 404 million.

Now, they’re fixing things. They are closing stores, and that is important. They are opening some as well, but around 90 loss-making stores closed. And Sean Summers says the store estate reset is effectively behind us. They’ve stopped shrinking. That’s a good sign. But the number that matters, as I said, is that the group is actually making a headline loss. Boxer is making all the money. So Boxer is a problem, not a solution.

The Boxer stub: are you getting Pick n Pay for free? (04:47)

Pick n Pay owns 53.1%. It used to own 65.6%; it used to own 100%. It’s been selling that down. On the last set of sales they said, nope, we’re not going to do any more for 365 days. But also, they don’t necessarily want to drop below 50%.

What the numbers tell us is that Pick n Pay’s market cap is around 14 billion. Their stake in Boxer is 18.8 billion, plus some two and a half billion of cash. Essentially, you’re buying 1,538 Pick n Pay stores, the liquor business, asap!, the clothing business and the brand for minus five billion rand.

That looks really good. And All Weather Capital’s Shane Watkins — I found comments from him — yeah, you’re being handed the stores for free. Chantal Marx at FNB Wealth and Investments makes the same point: the discount is unfair to a business that still has 70-odd billion in turnover.

I’m not convinced, to be perfectly honest.

So, firstly, capital gains tax. Pick n Pay bought Boxer for R185 million in 2002. They’ve said before that there’s no clear tax-efficient unbundling available. So maybe about three to four billion of potential tax liability in Boxer — and that five billion suddenly starts to shrink.

Also, no headroom. They want to keep a majority stake.

And I went and did a lot of digging over the weekend on comparatives. Tesco, for example, sold their Korean business and their Thailand business and generated good cash. But the difference there was that Tesco was selling poor businesses. Pick n Pay is selling its best business to subsidise its poor business — that is Pick n Pay.

Chris Logan makes the point that Boxer’s safety net dulls urgency. A turnaround needs to be urgent. There needs to be a sense that something is snapping at your heels, right? If you don’t get this working, then what’s plan B? Well, here they’ve got the money, so there’s no sense of that urgency. And of course, discounts like this can carry on forever — I point you to Prosus and Naspers. Different story, but a massive discount that’s been there forever.

So I think there are some terms and conditions on that five billion and that Boxer story.

Why Shoprite is winning (07:03)

Shoprite in and of itself is the competitor — way better, and I think a better price. Shoprite supermarkets grew two point three times the rest of the market, as per NielsenIQ, and that widened through Black Friday and over the festive period, while trading relatively cheap to itself.

Three things Shoprite is doing that I think Pick n Pay can’t do.

Shoprite’s absorbing inflation. Internal inflation at Shoprite is 0.7% against official food inflation of 4.7%. That’s a four percentage point difference, and Shoprite can absorb that. Pick n Pay can’t. Pick n Pay hasn’t got the space. They can do 9.7 billion of extra savings and discounts in six months. A retailer losing a billion a year can’t give 10 billion of discounts away.

Sixty60 is not a channel, it is a structural moat. Twelve billion of sales in six months, growing at 34-odd percent. It’s replaced the weekly shop for a lot of people who would pop down to a Pick n Pay or a SPAR, maybe even a Checkers. They now just do it via Sixty60 — and wait for when Sixty60 says, hey, what about your medicines? A long way to go there. But yeah, Pick n Pay’s asap! grows 37.5%, off a much lower base.

And Checkers has repositioned upmarket to also go after Woolies and Pick n Pay. So they’re going down to Usave, taking on Boxer with Shoprite and Usave, and Checkers is taking on Woolies and Pick n Pay. I still think the Shoprite story remains significantly better.

Section 189A: the labour fight (08:41)

But some challenges. Staffing.

Employee costs are 41.4% of the Pick n Pay segment’s trading expenses, which management has described as out of kilter with the sector. They launched, back in May, a Section 189 consultation. It’s 22,000-odd employees.

What do they want to do? Reduce working hours, remove the 13th cheque, remove all Sunday premiums, withdraw the transport benefit for late shifts, and restructure salary packages. The company says we have to do this to be competitive. The union said not a chance. Not a chance.

And here’s the problem. Everyone will tell you that the Pick n Pay experience is terrible because of the staff — the staff aren’t motivated, the staff aren’t friendly, the staff aren’t this, that and the rest. Okay. But what Pick n Pay has to do here is take what should be their best asset, which is the staff, and essentially go antagonistic on them. This remains a huge threat — more so if we start seeing some strike action.

There’s a way to go, but there isn’t a plan B on the staffing side. They need to make it work. They can sell Boxer shares — that buys them some time, they can kick the date down the road, sure thing. But they need to solve this staffing. They’ve said that break-even in 2029 is on a full turnaround and all the initiatives that they are doing, including labour. No plan B. That is the deal.

Every successful turnaround has employees as part of the process. Hubert Joly, the CEO of Best Buy, cut Best Buy’s employee turnover from fifty percent to thirty percent, and that fundamentally helped them with the business. Employees are important. Taking away 13th cheques and Sunday premiums — yes, it fixes the P&L, but it’s attacking the customer experience, which is that staffing. So yes, the cost base is uncompetitive, I get that, but it’s going to be very, very hard to do this. We’ll watch. There’s a labour court judgment that will give us a sense there.

Turnaround base rates: how often does this work? (11:27)

Globally, I was looking at some of the turnarounds: two and a half to five years for Tesco. Sainsbury’s was a ten-year period. Morrisons was about two years. M&S was seven years. So it takes a fair bit of time — and those are in scenarios where you’ve got the pressure. Pick n Pay hasn’t got the pressure of “if this doesn’t work, we are in trouble”, because they’ve got Boxer. So as much as we love Boxer and think Boxer’s a great idea, Boxer might actually be giving them a bit of a headache in that regard.

So then I went and did a whole lot more digging on retailers — how many actually work? Bankrupt US retailers that ended in liquidation: 47%. Sorry — 46%, over the decade to 2017. So is Pick n Pay going bankrupt? Nope. But it’s tough out there. Bankrupt retailers successfully reorganising: only 16%. Again, these are US numbers, but nonetheless it gives you a sense of how tough it is. Corporate transformations failing to hit value or timeline targets — this is a Boston Consulting Group report from 2021 — 57% don’t hit those timelines. Pick n Pay has already seen it slip twice.

In other words, it is going to be tough out there. And yes, there are examples where it has worked. But often what also happens is the turnaround works and the share price takes a much longer time to actually come back. You get the turnaround working, but you don’t get the share price action. And share loss, because a rival is structurally cheaper and does it better, does not return at all. The customer just doesn’t come back to you. There’s no reason customers have to use Pick n Pay — they can go almost anywhere.

Disposable funds are fixed: they can get the money from Boxer, but they can’t do anything for almost another year, so that’s not quite done. They needed to exit broken formats — that’s pretty much done. One CEO, one plan, five years — yeah, the date, as I said, has moved twice. And truthfully, we had Richard Brasher from 2013 to 2021. He was a turnaround as well. So we could make the argument that this is a 13-year turnaround and we’re not yet finished turning around.

Balance sheet: you read One Up on Wall Street by Peter Lynch and he says you need the balance sheet. And they’ve got the balance sheet — but of course they’re selling their best asset to make that balance sheet. And then employees and suppliers: employees really are the story.

Simon’s call and what would change his mind (14:28)

So what have we got? Some good brand recognition, some good real estate, gross margins going the right way, online momentum, clothing has turned, balance sheet not in crisis. All of those are strengths.

The weaknesses: core turnover is shrinking, break-even is slipping, the labour issue, group profitability is all Boxer, no price weapons. So, lots of weakness.

Opportunities: is it that stub? But I’ve got to argue, once you’ve got the CGT, I’m not sure how much stub there is there. The big thing is that Section 189 outcome — that is going to be hugely important. A rate-cutting cycle and easing food inflation, I don’t know when we see that, but that will certainly help. And of course, online is good for them.

Threats are Shoprite, threats are Checkers Sixty60, threats are the labour court, threats are consumer weakness, and threats are [unclear — see note below].

My call: not in Pick n Pay. I’ve got Shoprite. Maybe you want some Boxer.

The pattern match is wrong. If you put Pick n Pay against the winners, it fails. It’s not repairing the customer proposition — staffing, treating employees as a cost line rather than a part of the business, a part of the delivery. And that’s just not going well. The market share evidence is brutal: they are losing market share to Shoprite. And the stub — that five billion negative is not quite so simple when you take out the CGT.

So what changes my mind about this story? Labour court in Pick n Pay’s favour — absolutely. Interim results, due October, showing the Pick n Pay segment’s losses narrowing. Don’t expect a profit, but narrower losses. Like-for-like supermarkets turning positive. Or maybe a corporate action — an unbundling, a strategic partner, maybe even a take-private.

For me, Boxer sure, but Shoprite is absolutely the one. I would not buy Pick n Pay just because it looks cheap. It looks cheap — I think it’s cheap for a reason. Remember, break-even was 2027, then it was 2028, now it’s financial year 2029. That is absolutely hurting.

And if we go quickly to the chart — this is not an attractive chart that says please come and buy me. I tried my luck here, I think it was back in January last year, the rights issue; I got shaken out. It’s been up at 32, it’s trading at 19. Not particularly pretty. If we look at the overview, there’s no dividend yield, price-earnings is looking fairly ugly, price-to-book because there’s just nothing there. Nothing about this is particularly attractive from that regard.

And the analyst price targets: we are sitting on two strong sells, one sell, four holds and one strong buy. Only one buy, and it’s a strong buy at that. The high share price target is 37, the average 22, the low 16. The current share price is 19. In other words, it’s barely above that low.

I am leaving Pick n Pay where it is right now. I actually owned it way back in the day — switched about 20 years ago, in the early 2000s, from Pick n Pay to Shoprite. There are risks. I am watching that Section 189A. That is the hugely important deal right now. If they can get that working, then things are different and maybe there is something there. Until that happens, I am sitting on the sidelines and I’m holding my Shoprite shares.

Events & close (17:34)

WorldWideMarkets, powered by Standard Bank Global Markets Retail and Shyft — the global money app that puts travel, shopping, payments and investments in the palm of your hand. Enjoy the cheapest forex rates anytime, anywhere. Shyft, powered by Standard Bank. Thanks to Standard Bank. Thanks to Shyft.

We have a couple of events coming up. There is a Power Hour, Wednesday the 12th — depending when you’re listening, that’s today, tomorrow or yesterday. We’re looking at building your ETF portfolio: one fund to ten. Truthfully, I think ten is too many, probably eight.

And then 2 September, Nerina Visser: one ETF, 100% offshore — the etfSA Oyster Actively Managed ETF. Head to justonelap.com/events for more information and booking.

We’ll leave that there for now. My name is Simon. We’ll chat again next week. Until then, cheers all — and as always, look after yourself. If you can, look after somebody else as well.