Pick n Pay chairman Gareth Ackerman warns that the government’s reckless policies will push South Africa over the brink, increasing food shortages and prices and destroying businesses.
At the retailer’s AGM on Wednesday morning, Ackermann, who is also co-chair of the Consumer Goods Council of South Africa, criticized the government’s recent race-based water rights quotas and Employment Equity Amendment Act (EEAA), which compounds the pressure on companies already under stress through power outages, crime, criminal gangs, collapsing logistical capabilities, burning trucks, and diplomatic confrontation with our largest trading partners.
Together, these factors are undermining any hopes for an economic recovery.
By imposing new ethnic quotas on employers of more than 50 people, the EEAA poses a threat to private sector employers if they fail to hire a workforce that reflects their ethnic demographics, which will in effect put large numbers of qualified people out of work and replace them with unqualified people.
“It (the law) is most likely unconstitutional and could destroy many of the producing companies and foreign investments on which the economy depends.
I cannot understand why our government has not kept up with the times. The law tries to force action, by decree, an outcome that most large companies are already doing their best to achieve. Not because they were instructed to do so, but because of the growing realization that a diverse workforce and leadership is a strategic asset.
“This is the basis of the ESG principles that most companies follow vigorously and vigorously,” said Ackermann, noting that PnP spent more than R50 billion on BEE’s business over the past financial year – “eight times more advanced than any other retailer”.
Another troubling development, he said, is the new provision of race-based water rights that will threaten food security, as there is no line for black shareholders with the capital to buy these needed farm shares.
“This could destroy or close many of our farms and erode the value of all existing farms, thus creating a banking crisis – at a time of high food inflation and unemployment.”
The retail group has been working for years to ensure they adapt to the changes that will affect society and the challenging space they find themselves in, but when they are relentlessly attacked by setbacks on every front over a prolonged period, there is a temptation to give up.
“It’s been difficult to stay positive about SA’s future for so long now.”
On a more cheerful note, Ackerman said that despite everything, he was somewhat more positive about the country than he was when PnP Present its financial results, because the government seemed to realize that it needed help to get the economy moving again; Independent power projects were taking off, there was hope for freight and logistics, and the broadband spectrum impasse was resolved.
“More than 4,300 megawatts, the equivalent of four load shedding phases, is set to come on the grid in the next two years. This does not even include the impact of accelerated domestic and private investment in small-scale solar power generation, supported by tax incentives, and local government initiatives to buy power independently of Eskom.
“The consequences of this will ripple through the economy for years to come.”
From a business and consumer standpoint, he said he hoped consumers would finally get some relief from the rate hike, which has been “brutal.”
“For our part, I am very proud of the contribution that Pick n Pay has made to protect consumers from the worst, keeping internal inflation below the CPI, and less than half the current 14-year food price inflation rate of 14%.
“Our commitment to launching private and exclusive brands has made a huge difference to the consumer. Our no-name brand, a Pick n Pay feature since 1976, continues to help the consumer make ends meet.”
Ackermann said the group was built during a time of huge uncertainty in South Africa.
“Now, as then, we have continued to invest – putting R4 billion into the business over the past year – as a testament to our commitment to building for the future.”
On Wednesday, PnP issued an update to trading for the 20-week period ending July 16, 2023, saying it had made good progress on executing its Ekuseni strategic plan during the first four and a half months of fiscal 2024 (FY24), with strong sales momentum in Boxer and Online, although sales from PnP South Africa were down 0.3%. For this, he blamed efforts to contain the impact of rolling blackouts.
- Group sales increased 4.8%, with SA sales growing 4.4% (0.9% comparable), while Group Rest Africa segment sales increased 15.9% (12% on a constant currency basis).
- Clothing sales in independent stores grew by 10.9% and group liquor sales for the period increased by 9.8%.
- Online sales growth for the period was a solid 75.3%.
- Boxer SA sales growth was 15.4%.
- The group’s internal selling price inflation rate for Saudi Arabia was 9.5%, which is lower than Stats SA’s food CPI of 13.2% for the period.
Pick n Pay estimates that the extraordinary costs backlog for the period will be R610 million due to increased outage expenses, duplication of supply chain costs and restructuring costs.
Between March and June this year, it spent R300 million on diesel to power the generators.
It also incurred R110 million in double supply chain costs during the handover of the Longmeadow/Eastport distribution centre, and an expected R250 million in restructuring costs.
Therefore, the group expects profits for the first half of FY24 to decline by more than 20% compared to the first half of FY23.
PnP has been listed on the JSE for over 50 years.
Its share price took a beating after the trading statement — down about 9% by midday — with a moderate rebound at the end of the day. DM