Advice and Opinion • News • Young Professionals

By Connor McCarthy Crowe, Property Analyst at Capital Land Property Asset Management.

The recent decision by Pick n Pay to publicly list the Boxer brand indicates a strategic move by the ailing retail giant to capitalize on its discount brands’ capability and competitive presence in the urban rural retail space.

But will this move help address the range of issues that the Group is facing or present even more challenges than it solves?

The story so far

Founded in 1977, the Boxer brand has established itself as “Africa’s favorite discount supermarket”, through its effective and tenured management teams’ ability to grow the retailer to what it is today. With a footprint of 282 Superstores, 136 liquor stores and 31 Build stores across South Africa and Eswatini as of June 2023, Boxer has been a part of the Pick n Pay Group since its acquisition in 2002, demonstrating its ability to effectively operate and grow its business model independently from the wider Group.

The story of Boxer’s parent company tells a different tale. Pick n Pay, over the previous ten years, has given up a considerable amount of their once sizeable, and somewhat dominant, market share in South Africa. This is due to a range of factors including the retailer’s inability to keep up with Shoprite’s aggressive expansion, which has been characterized by robust investment in their supply chain, as well as their innovative approach to e-commerce and digital marketing. Additionally, Pick n Pay has faced further headaches in the form of publicized labor disputes, supply chain inefficiencies and an unsustainable debt profile that is growing by the day.

The long road back

The commencement of Pick n Pay’s plan to reestablish itself as a dominant player in the market was marked by its decision to tap its former CEO, Sean Summers, to take on the top job once again. Summers’ time as CEO through the early 2000’s was a dominant period for the retailer and an appreciable portion of that success was attributed to Summers’ leadership.

Pick n Pay has already witnessed a few successful moves this year having recently won a legal battle with one of their largest franchisees who owe them over R200 million as well as successfully renegotiating an existing loan agreement with RMB to the tune of R4.5 billion.

While every successful step toward its former self is desirable, Pick n Pay will look to the highly profitable Boxer, and its unique market performance, to ultimately quell its growing debt problem.

Pick n Pay will implement a R4 billion rights offer in 2024, as well as the Boxer IPO, as part of a recapitalization strategy aimed at boosting liquidity, addressing balance sheet issues and funding potential growth opportunities.

Urban-rural township retail strength

The urban-rural retail market is characterized by a consumer population that falls primarily within the lower end of the LSM (life style metric) range and therefore presents a variety of strengths and challenges to landlords and retailers.

The consumers in this market are, given their limited earning potential, reliant on access to budget friendly grocery and fashion stores, as well as financial and transport services. Urban-rural retail shopping centres are uniquely important to these communities as they provide important access to these retailers, services and amenities without consumers having to travel further into urban centres as has been a reality in the past.

Dominant shopping centres within these communities are usually able to establish themselves as a community hub with a variety of attractive retail offerings and financial services as well as a busy taxi rank and involvement in community outreach programs. Urban-rural retail centres are therefore effectively able to capture a large portion of the surrounding catchment area’s disposable income given the integral role that they play in providing the community with access to the majority of their economic needs and wants.

The urban-rural retail dynamic has somewhat shifted in this regard, as low-income households are now placing their preferences with discount, national brands, and retailers instead of local, informal traders, which has been enhanced by the ease of access and convenience provided for by these shopping centres.

This reality is quantified by the recent reporting of listed property funds with the highest exposure to this market such as Exemplar Retail, Vukile Property Fund and Resilient REIT who are outlining strong fundamental growth in trading densities since COVID-19, coupled with positive rental reversions and low vacancy rates (below 2, or even 1%).

Boxers’ growth within the urban-rural market

Boxer serves as Pick n Pays de-facto budget brand, somewhat similar to that of Shoprite to Checkers. Boxer and Shoprite are the dominant grocery anchors within the urban-rural market, with very little serious competition posed by the other national grocery retailers, Spar and Woolworths, in this market.

Boxer has witnessed considerable growth in a market this has primarily seen Shoprite as the leading brand, generating more than R34 billion in the previous four quarters, growing sales by 16.1% and opening 55 new locations in the previous financial year which has grown their footprint to 454 stores, just shy of Shoprite’s 500-odd locations.

The driving force behind Boxers recent growth has primarily been its aggressive expansion strategy into key locations within urban-rural communities; coupled with a focus on providing value through private label products with high margins and improving customer experience by investing in store upgrades. This has allowed the chain to build its presence within the low-income market in a secure and profitable way with no indication that their momentum will taper in the coming years.

The moral of the story

Boxer has successfully established themselves as a key player in the low-income grocery retail market through insightful investments into their supply chain, product ranges, and price points. Beyond this, they have positioned themselves incredibly well within urban-rural communities at dominant retail centres with upgraded and attractive stores.

The decision by Pick n Pay to take the Boxer brand public is one that will free up much needed liquidity for Pick n Pay to address their operational and financial issues. Boxer will also undoubtedly benefit from the listing, which will provide them with increased liquidity to build on their expansion drive as well as an elevated level of prestige and visibility within the wider South African economy.

The overarching narrative of this entire transaction, is that there is an untold level of financial and economic power that lies within the urban-rural market that is shifting its preferences toward the formal economy’s retailers. The onus now lies on these national firms to adjust their approach to this sizeable portion of the economy through quality offerings and accessible price points, something that Boxer has done appreciably well and for which are subsequently reaping the benefits.

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