PICK N PAY RETAIL BUYING STRUCTURE / NEW PRODUCT LISTING PROCEDURE

Transcription

1 PICK N PAY RETAIL BUYING STRUCTURE / NEW PRODUCT LISTING PROCEDURE In years gone by, an important contributor to the success of Pick n Pay was the high degree of decentralised decision making (facilitating more than one pick at the cherry in the words of Raymond Ackerman). With the change in the trading landscape, and the improved efficiencies and as a result cost savings which can be garnered from a more centralised approach, it became critical for Pick n Pay to shift its operating model. With the shift in its operating model over the past three years have come some significant changes in Pick n Pay s management structure: Pick n Pay moved from six operating divisions to four Western Cape, Eastern Cape, KwaZulu-Natal and Inland. The consolidation of the three inland regions, namely Gauteng / Free State, Northern Region and Inland hypermarkets, into one team was completed in August 2010 The hypermarket division combined with the regional supermarket divisions, namely inland hypermarkets into the Inland region, KwaZulu-Natal hypermarkets into KwaZulu-Natal, Port Elizabeth hypermarket into the Eastern Cape region and the two Western Cape hypermarkets in the Western Cape region Regional buyers are responsible for their respective regional corporate (hypermarkets and supermarkets) and franchise stores. As Pick n Pay becomes more centralised, all buyers will report to one division so one person will be in charge of the buying for all regions The company continues its move to specialised category buying. Buyers are now required to become more category focused, understanding the needs of shoppers by category, facilitating a far more strategic and specialist approach to buying and ranging across different store profiles and formats. Buyers will work with and report to category specialists, with category specialists taking responsibility for profitability in terms of ranging, margins, SKUs and the category strategy Gareth Ackerman commented that Pick n Pay is moving closer to suppliers the whole way we buy and source merchandise has got to change, suggesting increased collaboration between the retailer and various suppliers. This will become more important as Smart Shopper becomes entrenched in the Pick n Pay / shopper relationship. Pick n Pay expects to use Smart Shopper data as a guide on how and what to buy and it plans to work with suppliers on getting the right products into its stores. Pick n Pay sees conversations moving from pricing issues to formulating strategies which benefit both retailer and supplier and account for market evolutions. It has implemented joint KPIs which it will work with suppliers to achieve. Strategically, Pick n Pay has taken the view that while the focus will remain on retail, supply chain management involves all aspects of the business and requires a collaborative approach. In execution, this will effect major changes to buying and to relationships with suppliers, which will become more long-term and strategic rather than short-term and price-driven, and will mean more engagement with a range of other parties in the total value chain, e.g. 3PL, forwarding and clearing, and route to market businesses. The Pick n Pay franchise division provides merchandising and operational support to the franchise store owners. This division does not interact with suppliers to a great degree. The franchise division office guides the franchisees initially but once a store is up and running it gets handed over to the regional office for ongoing buying responsibilities. For additional information / queries: +27 (0) / info@tradeintelligence.co.za 1

2 STORE RANGING, MERCHANDISING AND CATEGORY MANAGEMENT 1. Ranging Along with the specialisation of buying and enhanced category focus, Pick n Pay announced in June 2010 that it is further reviewing merchandise space allocation within stores to maximise profitability. This de-cluttering of product ranges, will ensure sufficient space allocation to faster moving products, whilst giving new products a chance to be noticed by shoppers The data mined from the Smart Shopper programme is expected to play a significant role in ranging decisions. Deeper insight into customer behaviour will assist in organising ranges to improve their profitability The average Pick n Pay store carries 17,000 SKUs, with the top 5,000 accounting for approximately 70% of sales implying a very large SKU tail. Pick n Pay believes there is potential to reduce the number of SKUs in certain categories up to 20% Express stores are ranged according to the requirements of the format and the store location, the focus being on fresh and convenience lines. A range of approximately 1,700 SKUs is stocked The review of space allocation in store includes some reallocation of trading space away from groceries (removing slow-moving SKUs), towards more profitable areas like general merchandise and clothing. The allocation to general merchandise is likely to increase from the current 24% to 35% To ensure appropriate ranging by store profile, Pick n Pay classifies stores as follows: Emerging market Lower LSM Medium LSM Higher LSM 2. Merchandising / Store Environment The brand relaunch has involved heavy investment on the part of Pick n Pay in the establishment of the new look, not only across communication material and media, but across all stores. The focus is on building a world-class shopping experience (driving a rejuvenated shopper USP) using the Pick n Pay Inspired by You message as the platform for all customer interaction. Regarding merchandising of shelves, Pick n Pay standards are among the best if not the best in the industry. Effective management of levels and gaps result in well-structured, attractive and impactful shelves. 3. Category Management / Shelf Planning Corporate Hypermarkets and Supermarkets The buying division has a team of category specialists focused on category strategy and shelf optimisation Within shelf optimisation, difficulties are experienced in implementation lead times, possibly due to the Pick n Pay decentralised decision-making structure. Buyers will report to category specialists and demand planners will report to buyers. Category specialists will take responsibility for margins, SKUs and ranging within each category. With category specialists holding buying responsibility, it is expected that there will be increased consolidation of the thinking between buyers and category specialists resulting in better application of initiatives at store level Liquor, pet, snacks and chocolates are regarded as Pick n Pay s key destination categories. Liquor in particular is considered to be an important category for hypermarkets and the Group will focus on its liquor offering in FY2012. Other focus categories for FY2012 will include baby and health and beauty General merchandise makes up roughly 10% of the total business and about 18% to 20% in the hypermarkets. This particular category underwent a cleanup in FY2011 and is viewed as a key differentiating category for both hypermarkets and supermarkets One of Pick n Pay s most important categories is fresh, where it continues to strive to improve on its offering For additional information / queries: +27 (0) / info@tradeintelligence.co.za 2

3 Franchise Owners can request formalised planograms and implement these within their stores, especially where they experience space constraints, given that their stores are normally smaller than the average corporate store Compliance issues among franchises go with the territory and Pick n Pay is currently reviewing options to improve compliance across franchise stores PRICING Fundamental to Pick n Pay s strategy is the relentless focus on improving value-for-money for its customer base. The customer is fundamental to the Pick n Pay buying philosophy and therefore the company will continue to fight for best value and pricing, and offer this within a pleasant, clean and aesthetically pleasing shopping environment. A twin strategy of reducing gross margins and firm negotiations with suppliers has resulted in better selling prices on shelf, to support the Group s deliberate policy to keep prices as low as possible to assist customers in the recessionary economic climate Pick n Pay had below inflationary price increases during FY2011 Greater emphasis has been placed on bigger, bolder price cuts through heavy press and TV price advertising With the consolidation of hypermarket and supermarket buying functions, recommended selling prices (RSPs) are standardised across these formats where the range is commonly stocked in both, the previous differentiation having proved confusing to shoppers. This also facilitates single broadsheet advertising across hypermarkets and supermarkets The public debate between Shoprite and Pick n Pay as to who is cheaper is ongoing, with retailers employing independent price auditors to verify that they are in fact the cheapest. The issue remains that it depends on the basket of products measured, as each retailer has its own basket of known-value items (KVI). Within the Pick n Pay 350 SKU basket, Pick n Pay reports that it is up to 3% cheaper than its nearest competitor. In 2010, myshoppingdeals.co.za did an in-depth price comparison of an identical basket of goods across Checkers, Pick n Pay and Woolworths. After six months of the study, Pick n Pay was found to be consistently cheaper than the other two supermarkets Franchise stores sell KVIs (80% of sales) at Pick n Pay prices, but they can charge up to 3% more (or less) on the balance of their range The key message from Pick n Pay is people do not have to compromise, they can have it all For additional information / queries: +27 (0) / info@tradeintelligence.co.za 3

4 PRIVATE LABEL The corporate private label strategy is based upon the premise of: Good: Offering a value range at an affordable price: No Name brand Better: Offering a brand equivalent at a more affordable price: Pick n Pay brand Focus and development on private label forms a fundamental part of the Pick n Pay trading strategy. Brand Description Number of Lines Growth Targets No Name Good: Offering a value range at an affordable price June lines FY2010: 26% growth in packaged food 13% of packaged food sales FY2011: 10% growth 2,000 SKUs by 2012 Grow private labels to roughly 20% of turnover Pick n Pay Better: Offering a brand equivalent at a more affordable price June ,043 lines 14% of packaged food sales at HFY2011 Now worth roughly R5 billion Customers feel very comfortable with the new Pick n Pay range of products and have shown their trust in the brand by buying into it and supporting it. As a result, Pick n Pay management believes that it has made significant inroads into certain like-for-like ranges offered in the Woolworths business. Pick n Pay s focus on its fresh and convenience offering can be seen through its range / range expansion into: Convenience foods Fresh produce Fresh meat Deli meats Cheese Bakery Pick n Pay s commitment to environmental sustainability and the growing focus of consumers on the environment is reflected in its private label development. The retailer considers both their environmentally friendly and organic ranges to be important elements of the brand as they enhance their social image The green household range, Pick n Pay Green consists of 31 household cleaners and 15 general merchandise products, and aims to promote green and eco-friendly practises as a way of life through its various economic and social development programmes. It is non-toxic, biodegradable and nonvolatile, and offers products ranging from an all-purpose cleaner to dishwashing liquid to carpet cleaner and the newly introduced general merchandise products Development and expansion of the range is ongoing Pick n Pay has also recently introduced a Real Baby range of products that consists of nappies, disposable products and toiletries. Inoculation for babies is also offered at selected stores that have pharmacies. Pick n Pay also has a range of exclusive brands which carry Packed for Pick n Pay on their back labels. The brands are as follows: Nutriphase in Pet Food, Good Stuff in Bath and Body; Sun Sure in Sun Care; African Wild Child in Kids and Grape Therapy in Bath and Body. For additional information / queries: +27 (0) / info@tradeintelligence.co.za 4

5 DISTRIBUTION Through engaging with world class service providers, Pick n Pay has embarked on designing a comprehensive centralised supply chain network which will include new grocery DCs in Gauteng, Western Cape, KwaZulu-Natal and the Eastern Cape. Strategies to ensure end to end perishables and fresh, general merchandise, clothing, liquor and Africa supply chains are currently in development. Longmeadow DC Longmeadow, a world class facility, is operated by logistics company Unitrans and is considered one of the greenest facilities of its kind globally. Twelve major sustainability initiatives have been implemented in the recent expansion, with the focus on energy management, water management, refrigeration and the building materials used Longmeadow operates according to a sophisticated cost-to-serve model (groceries) which is utilised by the Group to negotiate distribution allowances with suppliers Depending on the store, Pick n Pay delivers up to five times per week, and with delivery schedules being overhauled Pick n Pay is starting to see significant improvements in on-shelf availability Roughly 84 suppliers distribute through the Longmeadow Grocery DC which supplies 40% to 50% of total Inland grocery volume Plans are in place for a further four national DCs over the next three years at a cost of some R2 billion. Pick n Pay currently operates several warehouses around the country, with about 99,000m 2 of distribution capacity. The Group plans to increase this to 280,000m 2 over the next five years The Western Cape DC is currently under construction and will be opened in January 2012 KwaZulu-Natal is to open during 2013 Pick n Pay has also bought a site in Alberton that will act as the national site for general merchandise and slow moving goods The slow moving DC will most likely also be replicated in the Western Cape at some stage The ultimate target is 80% of stock to be centrally distributed from four DCs, the impact of which will be the enhancement of the customer offering through improved quality and a better in-stock position. The outcomes of centralised distribution for Pick n Pay are: Improved availability with less stock and labour at store level Supplier collaborations will become extremely important in reducing both waste and costs Target of 96 98% availability over the next two to three years Contracts between Pick n Pay and suppliers that determine what needs to be delivered in terms of SMAs and KPIs The long-term benefits of the completion of the centralised distribution programme are likely to be extensive, in the form of: Improved gross margin Reduced in-store overheads (up to 35% of store retail space is currently storage area which will hopefully be reduced Improved sales due to higher on-shelf availability According to Afrifocus Securities, the conversion of stock space to trading space results in an estimated saving of about 52% in back store rental charges. A centralised model could cut costs of distribution to about 3%, from the original 7 8% achieved under the previous supply chain model For additional information / queries: +27 (0) / info@tradeintelligence.co.za 5

6 TECHNOLOGY 1 SAP Central to the information services (IS) strategy has been the implementation of SAP throughout the organisation. The SAP project was embarked upon in April 2005 with the pilot commencing in July 2006 The conversion of the relevant systems across the Pick n Pay Retail and Franchise divisions was completed in August 2010 The SAP implementation covers all elements of the business including merchandise, stores, HR, payroll, finance distribution and reporting The investment in the SAP conversion amounted to approximately R520 million to February 2010 Pick n Pay is still looking to improve the way it uses the SAP system in order to improve process efficiency Clear benefits from this implementation can be seen in the following improvements (to name a few): A fully integrated system across the business Business processes more streamlined and efficient, saving both time and money One database for vendors and articles throughout the company Improved inventory management Improved customer service in enquiring and sourcing products more easily due to an improved searching facility Increased speed to market Improved space planning due to improved inventory control Improved management of returns Improved ordering through EDI Improved management reporting 2 EDI Electronic Data Interchange Electronic trade or electronic document interchange (EDI) is the exchange of trade documents electronically between the computer systems of Pick n Pay and its vendor partners. These electronic documents are transferred automatically and seamlessly from one computer system directly to another EDI has been implemented at over 600 suppliers to date with the top 100 food vendors and vendors delivering into the Longmeadow DC being prioritised for full EDI implementation by the end of 2012 Pick n Pay piloted the use of the Pricer ESL (electronic shelf labelling) system in some 44 outlets and plans to roll this out to other stores gradually. The system reduces the time taken to update prices and improves on price integrity substantially The system is in place in all KwaZulu-Natal corporate stores as well as some Western Cape stores Further roll-out is on hold pending the approval of the business case For additional information / queries: +27 (0) / info@tradeintelligence.co.za 6

7 3 Green IT One of the Pick n Pay s IS key focus areas is around sustainable IS practices, and Pick n Pay is continuously searching for ways to green its approach to technology. Pick n Pay is one of the first companies to implement the IBM p6-595 server technology, a green server which boasts a number of green technology features. The server uses less power, powering down certain components when not in use. Other features include power trending which allows the user to record and predict energy usage, thermal reporting, which displays how much heat is dissipated and a rear water cooled heat exchanger door which circulates cold water, trapping about 65% of the heat before it is released into the computer room where a lot more energy would be required to cool down the larger volume of air In addition, Pick n Pay has implemented power saving technology across the company. This technology automatically forces PCs and laptops into sleep mode when not in use and has resulted in significant energy savings to date For additional information / queries: +27 (0) / info@tradeintelligence.co.za 7