Investors couldn’t seem to make up their minds about the Pick n Pay trading update released on Thursday. The share price dropped at the open, then more-than recovered, but eased back again and, finally by the close of trade, settled back at around its opening level of R19.10.
There is of course enough on Pick n Pay’s horizon to justify some volatility. The 2.5% increase in like-for-like sales for the 20 weeks to 19 July wasn’t too bad and probably came as quite a relief for shareholders after the disappointing trading update released by Boxer a week ago.
Otto 1890’s Alec Abraham says the update is in line with South Africa’ muted trading environment but reckons there are signs Pick n Pay has stemmed the outflow of customers. That would be good news indeed.
But, before we get too excited, says Abraham, there’s still the cost of the potential retrenchments to consider as well as the fact the break-even date has been pushed out to financial 2029.
And making it all a little tougher, given the frequently-stated importance of bringing Pick n Pay’s labour costs into line with its competitors, is that the South African Commercial Catering and Allied Workers’ Union (SACCAWU) has indicated it will strenuously fight the group’s proposed Section 189A restructuring process. The union has applied to the Labour Court and has referred a dispute to the CCMA. At this stage the matters are pending and Pick n Pay says it “remains fully committed to engaging in good faith and in accordance with all applicable legal requirements”.
Labour issues galore
Still, the Labour Court application is sure to slow down any benefits CEO Sean Summers and his team were hoping to secure.
And it may not be the only labour shadow overhanging management’s plans. Shareholders attending the group’s annual general meeting on Thursday morning raised the prospect of amendments to the Labour Relations Act interfering with the employment model currently underpinning robust growth in Pick n Pay asap!
The Labour Relations Amendment Bill, published for comment in February, seems intent on ensuring so-called gig economy workers, such as the thousands of food and grocery delivery drivers dotted across the urban landscape, are classified based on the actual nature of their working relationship, rather than any contractual loopholes.
As Kwanele Ngogela, senior inequality analyst at Just Share tells the Financial Mail, these loopholes are enabled by 21st century tech. The app, used by the retailers for deliveries, determines pricing, allocates work, monitors performance and can suspend or deactivate drivers. “All classic indicators of managerial control, yet companies avoid obligations such as UIF and COIDA contributions, minimum labour standards, paid leave and collective bargaining rights.”
Beneficial asymmetry
The result says Ngogela is a beneficial asymmetry for the companies. “They retain the commercial benefits of directing a workforce while workers bear many of the costs and risks traditionally associated with being an employer, including fuel, vehicle maintenance, insurance and, in many cases, even branded safety gear.”
Rachel Nyirongo, an analyst at Just Share, pitched up to the AGM to find out if the Pick n Pay board was prepared for a possible change in classification and whether an internal assessment of the LR Amendment Bill had been done.
Chairman James Formby and Summers were understandably non-committal. Formby assured Nyirongo the group “will follow and abide” by any legislative changes. Summers added that Pick n Pay currently contracts to a company to provide the delivery service. “We’re obviously in constant communication with our outsource service provider and they assure us they abide by all the laws that are applicable and the change in legislation that is contemplated.”
Both Formby and Summers overlooked Nyirongo’s query about what liability and responsibility Pick n Pay bears when an asap! driver is involved in an accident while making a delivery. No doubt we’ll hear more of this at future AGMs.
The good news for Pick n Pay on the legislation front is that whatever changes do materialize will be felt by all the players in the market, so it will not suffer a competitive disadvantage.
Necessary urgency
Just how volatile the environment could become was hinted at by shareholder activist and longtime Pick n Pay investor Chris Logan. He was evidently troubled by postponement of the turnaround breakeven date. Logan knows a thing or two about turnarounds. He’s tracked several in his time and says they rarely work. One thing they need is a sense of urgency. In this case, that sense of urgency might be dulled by the presence of the Boxer safety net.
Logan wanted to know how Pick n Pay ensures the necessary level of urgency is maintained in carrying through this turnaround, which he said was quite long in the tooth.
“Does the Boxer shareholding not mitigate against having the burning platform that turnarounds often need?” asked Logan, although he stopped at suggesting Pick n Pay unbundle the remaining 53% of Boxer it owns.
Both Formby and Summers assured him there was a very strong sense of urgency. And an enormous amount of work was being done on a range of initiatives; some are bearing fruit. “But”, said Formby, “it is a complex and difficult process against a backdrop of a very difficult economy.”
“It hasn’t helped that the market has tightened the way it has in South Africa,” added Summers, referring to the recent marked food deflation.
“What we’re focused on is the prize at the end of this journey – a beautiful sustainable business,” said Summers.