With food retailers facing a mixed bag as the global economic downturn bites, it is becoming clear that some are faring better than others. Earlier this month, Pick n Pay, South Africa's largest grocery retailer, was named international retailer of the year by the US-based National Retail Federation. In January's just-food interview, Katy Humphries spoke with Pick n Pay's chief executive Nick Badminton about the company's recipe for success and the challenges that lay ahead.  

With a 33% market share, Pick n Pay is the dominant force in South African retail. The company has three brands in South Africa - the flagship Pick n Pay supermarkets, Boxer superstores and Score supermarkets - and it also owns a chain of about 100 Franklins stores in New South Wales, Australia.

Pick n Pay has looked to reinforce its market leading position by investing in its brand through a store improvement and corporate rebranding programme.

The South African retailer is now little over halfway through its two-year, ZAR110m (US$10.8m), rejuvenation plan.

Over the past 14 months, the company has rebranded more than half of its outlets and converted a significant proportion of its Score supermarkets to the more recognisable Pick n Pay banner. 

Pick n Pay is also investing in the development of new formats. It operates Pick n Pay hypermarkets, supermarkets and family franchise stores, alongside two smaller formats - Express, in partnership with BP, and Pick n Pay Daily, which is a small pilot format currently being tested in the market.

For Pick n Pay CEO Nick Badminton, these investments are key to the company's ongoing success - especially given the competitive nature of the market.

"Because our reach is wide, we compete with just about every other food retailer. At the lower income levels, Shoprite and Spar are keen competitors while at upper LSM levels, we compete with Woolworths, Checkers and Spar," Badminton tells just-food.

According to Badminton, consumers' reaction to the rebranding has been "really positive".

"The original feedback we received prior to rebranding was clear: some stores were looking tired and a refresh was called for. We're very happy with the [post-rebranding] feedback," Badminton says.

However, Badminton is quick to emphasise, the rebranding initiative has been about more than updating its stores.

Pick n Pay has used the opportunity to tweak its product offering, advance its fresh food category and build awareness of its own-label products.

"We've taken the opportunity to completely overhaul our fresh offer and, again, we're really encouraged by the customer reaction. This is much more than new lines; we have increased our focus on quality, freshness and value for money. We've also repackaged all lines in the new image. Our drive to improve fresh will continue for many years to come.

"The private-label relaunch has been significantly improved by the great packaging the new corporate identity has allowed us to design. As part of this process we have repackaged, and in many cases reformulated, over 1,000 individual products. We have seen encouraging sales uplifts from this initiative," Badminton reveals. 

In October, Pick n Pay posted first-half turnover growth of 16.4% - with sales increasing to ZAR23.7bn for the six-month period. Revenue gains continued into the crucial Christmas trading period, when sales beat forecasts and the company outperformed the overall market.

"Pick n Pay prepared for good sales over the festive season and we weren't disappointed as customers showed amazing resilience, even under difficult economic conditions, and sales figures exceeded forecasts," Badminton said.

The South African economy has been somewhat sheltered from the full impact of the global credit crunch by the country's relatively strict credit laws and high interest rates, which have already dampened spending, Badminton observes.

Nevertheless, many South African retailers are struggling to achieve sales gains that outpace inflation as shoppers tighten spending in response to interest rate increases and rising food and fuel prices.

While Pick n Pay has fared better than many local rivals, Badminton says that the company does anticipate feeling some impact from these economic headwinds and such concerns have prompted it to "carefully" monitor its store rollout plans.

Despite difficult trading conditions, Pick n Pay intends to forge ahead with its rebranding programme in the coming year. Currently, the company plans to open 20 new stores, refurbish a further 44 stores and extend its Score conversion programme to a further 30 stores.

"While we should expect some fallout from the economic slowdown in developed markets, the drop in the fuel price, the relative stability of the rand and anticipated interest rate decreases are all big positives for the year ahead and Pick n Pay is anticipating solid growth during 2009," Badminton says.

"In this particular environment, price-sensitivity is absolutely key. Keeping prices as stable as we can will definitely be a challenge."

Increasing concern over food inflation at a time when consumer spending is constricting has sparked a row between Pick n Pay and its suppliers.

According to Badminton, Pick n Pay is being asked to push through "considerable" price increases by food manufacturers, in spite of a decrease in fuel costs and the outlook for easing inflation.

Badminton says that he is loathe to bow to this pressure as price increases are "felt at the tills" by consumers.

"Their wrath is being directed at retail and, given Pick n Pay's profile, particularly we believe, at us…. We do understand that the weakness of the rand and other factors have an impact on input costs. But given rocketing food inflation last year, we are now specifically asking our suppliers to exercise serious restraint, especially as commodity prices are now dropping."

As Pick n Pay has struggled to keep prices down in the face of soaring food inflation, the company has seen its gross margin decline. Now, "with a net margin of under 2%, we don't have much room to manoeuvre," Badminton admits.

In order to maintain margins, Badminton says Pick n Pay is constantly vigilant for ways to cut costs out of the business.

By way of example, Badminton tells just-food that when distribution costs increased due to the jump in fuel prices last year, this was absorbed into the base by cutting back on travel and switching to video conferencing. In this way, the company was able to both reduce overheads and lessen its impact on the environment.

Indeed, Badminton insists that the mixed economic outlook for the coming year has not distracted Pick n Pay from progressing its social and environmental goals.

"Pick n Pay's commitment to the environment is not new, nor is it tempered by any change in the economy. For us, green issues are here to stay," Badminton maintains.

Likewise, in converting its Score supermarkets Pick n Pay has not only improved its operational performance, it has taken on and trained numerous black entreasures through its Franchise Academy, Badminton says.

"Black economic empowerment is an accepted South African imperative…. The Score conversion project was an ideal opportunity to enable empowerment, especially given that the new franchise owners often hail from the communities in which the stores are located," he emphasises.

As he looks to the coming year, Badminton acknowledges that the economic climate is likely to prove challenging - as will continuing to appeal to consumers of all income levels.

However, Badminton remains upbeat on Pick n Pays prospects. "Our Score conversion process, together with openings and refurbishments, offer great opportunities for us."