Pick n Pay ramps up Africa expansion

| Thursday October 21, 2010 00:00

Wal-Mart is in talks to buy South Africa's discount retailer Massmart, a move that would give the U.S. firm a big presence in Africa and pressure local players. Pick n Pay, South Africa's second-largest food retailer, posted a 7 percent decline in first-half profit yesterday, and said it plans four new stores in neighbouring Zambia over the next 12 months.

It also plans to enter Mauritius, Malawi and Mozambique during the same period. 'Competition is going to be tough,' Chief Executive Officer Nick Badminton told Reuters following an investor presentation. 'Wal-Mart is a big, big gorilla but it is not unbeatable.' The Cape Town-based company has 26 stores in countries outside of South Africa including Namibia, Lesotho and Zambia, where it currently has one store.

Badminton also said it is also looking countries such as Angola and the Democratic Republic of Congo for expansion.

Africa not the answerBut analysts said expansion into Africa would not be enough to offset problems at home, where it faces stagnant sales as consumers battle high unemployment and personal debt levels.

South African retail sales growth slowed unexpectedly in August, data showed this month, highlighting subdued demand from indebted consumers and the end of the World Cup impact.

'It's all good and well to talk about Africa expansion but Africa won't solve problems they face in their South African business,' said Syd Vianello, an analyst at Nedcor Securities. Pick n Pay reported a 7.2 percent decline to 90.17 cents in half-year headline earnings per share -- which exclude discontinued operations -- hurt by weak consumer demand and stiff competition and forecast a tough second half. Headline EPS is the main profit measure in South Africa and strips out certain one-off and non-trading items. Including discontinued operations, headline EPS fell 12 percent, to 75.31 cents. Revenue rose 6 percent to 25.3 billion rand.

Rival Shoprite posted a 16 percent rise in full-year profit in August as lower interest rates and a tentative economic recovery encouraged its mainstay South African consumers to spend more.

Pick n Pay said in July it would sell its underperforming Australian unit, Franklins, for about $183 million, but is still awaiting regulatory approval for the deal.

Pick n Pay said yesterday it would sell the stores either separately or in groups if Australia's unlisted Metcash Trading does not win approval to buy the units.-(Reuters)