e-spaces

By Tom Robbins

Cape Town – Pick n Pay is opening a small-format store today as part of its renewed bid to entice suburban convenience shoppers away from rivals Spar and Woolworths.

Spar neighbourhood supermarkets had done well on basic non-perishable groceries, Cobus Barnard, Pick n Pay’s general manager for convenience stores, conceded yesterday.

Woolworths food’s main drawcard was its fresh offering, said Barnard, who previously ran franchising at Woolies, .

He said that the new Daily store, in Fairland, Johannesburg, would be better than Spar in terms of groceries and would match Woolies on fresh lines, including prepared meals.

The format, at an average of 850m2, would be a hybrid of convenience and supermarket shopping, offering enough range to do a big shop.

Barnard said the previous small store incarnation, the Mini Market, had been unsuccessful as the mix between product variety and expensive service areas, such as bakeries, had lacked discipline.

While the new franchised Daily format was a test, the company was committed to being a player in the fast-growing convenience market, estimated to be worth R20 billion a year.

But Evan Walker, a retail analyst at RMB Asset Management, said: “I think it is a disaster to go small.”

Walker noted that Woolies, the market leader of convenience retailing, was increasing its store sizes.

Bigger convenience stores of 1 200m2 were more profitable than 500m2 stores.

Staffing smaller stores was more expensive per square metre and with consumers trading down, this was standing out.

The smallest franchised Woolies stores were not profitable to the group or to franchisees, Walker said.

Spar supermarkets of 2 000m2, which offered plentiful parking and stayed open till late, had proved that bigger stores could be both convenient and profitable.

Walker said Pick n Pay had a poor property strategy, with too many stores in old congested malls and not enough in the newer regional malls.

The group was trying to counter this by opening convenience stores, but risked cannibalising sales from its existing stores.

Quinton Ivan, a portfolio manager at Coronation Fund Managers, said Pick n Pay had been losing market share to rivals Spar, Shoprite and Woolworths, for two years, though Woolies last year lost share as consumers traded down.

But Ivan argued that despite a consumer move back to bigger formats with lower price points in the downturn, the long-term structural move to convenience shopping would continue.

Pick n Pay had struggled to combat the convenience threat because without centralised distribution it was difficult to keep myriad small stores adequately stocked.

But as it moved towards centralised distribution, rolling out small stores would become easier, Ivan said.

Shares in Pick n Pay Stores were 0.64 percent lower at R31.