Pick n Pay’s franchise horror show

Pick n Pay has revealed the extent of the struggles in its franchise supermarket business, with sales down by 0.8% in the 21 weeks ending 21 July. It described this performance as “disappointing”.

However, it needs to be seen in the context of internal selling price inflation of 4.7%, which means volumes through its franchise supermarkets were down by 5.5% versus last year over the March to July period.

The struggles across its franchisee base compare with sales growth of 3.6% across its company-owned supermarkets (and hypermarkets), excluding standalone clothing outlets.

It said “improved retail disciplines” has meant a strong turnaround from -0.5% in the second half of its previous financial year to the 3.6% level for the bulk of the first half of FY25. It added: “The return of Pick n Pay Hypermarkets to positive sales growth after a sustained period of under-performance is particularly noteworthy".

Store closures

Since the end of February, it has shut four corporate stores and 12 franchise ones. (It shut 11 franchise stores in the last financial year.)

This includes the 10 supermarkets in the East Rand operated by former franchisee John A Baladakis, whose business was liquidated by the retailer.

Pick n Pay said it was owed R224 million and a liquidation order was granted by the high court at the end of February.

According to court documents, the Baladakis stores (which included another nine liquor outlets) have annual sales of R1.5 billion.

New model for franchisees

Last year, it implemented an 'interim' model for franchisees which improved their commercial terms.

The core element is a higher purchasing rebate to franchisees to encourage them to increase their purchases through the group’s supply chain “in exchange for a higher franchisee royalty”.

It said work is underway on a future franchise model and it is looking to implement this by the middle of calendar 2025.

There are broader questions about the impact of on-demand grocery delivery services Checkers Sixty60 and Pick n Pay’s own asap! service on the franchise business. Sixty60 continues to dominate the space, which is making it tough for Woolworths and Pick n Pay to compete.

Moneyweb understands the economics of franchisees enabling the centralised delivery service at their stores are tough.

As part of the turnaround of the Pick n Pay business, the group announced in May that it would shut one in 10 of its corporate supermarkets over the next two years.

A further approximately 70 Pick n Pay stores will be converted to the mass-market Boxer brand (in areas and regions where this makes sense) or to PnP franchisees.

In the coming months, at least 14 supermarkets will be shut, with another “more than 10” to be converted to Boxer, it said.