Durban - Pick 'n Pay Stores will start a phased centralisation of supply distribution in a move to boost profit, making it the last supermarket group to commit to a streamlined store delivery system.
The decision, announced yesterday, follows a fundamental review of the business. Pick 'n Pay hopes it will help stem losses of market share to Spar, Shoprite and Woolworths.
Pick 'n Pay founder and chairman Raymond Ackerman has for decades been a fan of the efficiencies of centralising distribution, but has until now been reluctant to commit to spending the capital without negotiating discounts from suppliers.
Under the system suppliers will no longer deliver to each supermarket but to centralised warehouses. A single Pick 'n Pay truck will then load a variety of goods for delivery to a particular store.
Asked if grocery producers had agreed to offer Pick 'n Pay discounts in return for cheaper delivery costs, chief executive Nick Badminton said "a number have indicated that they will come to the party".
Badminton said suppliers that came on board would be able to drop off goods at distribution centres, while the rest would have to deliver to stores.
He said a total of R450 million would be invested in the Gauteng Longmeadow distribution centre, over half of which had already been spent.
While there had been much speculation as to whether Pick 'n Pay would commit itself to distribution centres, the group has been quietly upgrading existing warehouses in Durban and Cape Town. It has also already leased a facility in the Eastern Cape.
Quinton Ivan, an investment analyst at Coronation Fund Managers, said centralised distribution would allow Pick 'n Pay to free up cash that was currently tied down holding more stock than was necessary. This was done to compensate for poor supplier service, exacerbated by delivery truck congestion at stores.
He said the group was also paying retail rental rates on storage rooms at supermarkets to hold this additional stock.
In addition to phasing in centralised distribution, the company has revived its hypermarket format in a bid to take back market share in general merchandise. It will open two hypermarkets this year.
Pick 'n Pay said yesterday that headline earnings a share in the 12 months to February, excluding a once-off accounting charge, came in at R1.8055, up 18 percent from a year ago.
The accounting charge relates to tax assets of R46.4 million at the loss making Score chain that were deferred on the assumption that the chain would turn a profit. But Score made a loss again so the group decided to reverse the tax asset.
Sales gained 12.1 percent to R39.34 billion, but net profit fell 3.9 percent to R676 million, including the charge. The group lifted the final dividend by 18.5 percent to R1.0725 a share.
The shares fell 1.44 percent to R34.30. The food and drug retail sector lost 0.68 percent.