No doubt for both sides it was an existential battle. In one corner was Pick n Pay management, utterly convinced it had to extract R500m of annualised costs and create a “sustainable labour model” that would help drag the company back onto a profit trajectory. The just-released interim results, with a trading loss after leases of an eye-watering R1.1bn, were an unnecessary reminder that extreme action was needed.
In the opposing corner, the South African Commercial Catering & Allied Workers’ Union (Saccawu) was determined not to add any Pick n Pay workers to the rapidly growing ranks of the unemployed. The workers were facing a devastating scenario, with the most recent stats showing that 345,000 people were added to the army of the jobless in the second quarter, taking the total to 8.5-million.
For management, anything that looked like an avoidable cost had to be gutted. Out went rights and benefits that employees had secured over decades, with staff surrendering benefits such as a 13th cheque, transport costs, canteen facilities and Sunday pay that had made Pick n Pay a preferred employer in the grocery chain sector.
So successful was Pick n Pay that within days of announcing the agreement, Shoprite workers were reporting that in wage discussions their management was threatening to match Pick n Pay’s more stringent new conditions.
On the other side of the bargaining table, Saccawu was clinging on for dear life. Every one of its pushbacks was met with the threat of retrenchment. Even the once-favoured tool of employers — that Pick n Pay adopt an employee share ownership plan (Esop) — was given short shrift. One of the negotiators tells the FM that management declined to entertain the idea when the union raised it during the consultation.
A friendly face at the till?
There are benefits to an Esop that seem to fit the circumstances. There would be no immediate cash cost to the company, and it would tie the workers into the notion of a profitable future for Pick n Pay. As Cosatu parliamentary co-ordinator Matthew Parks tells the FM: “Esops give workers a vested stake in their company and boost productivity.” More than 500,000 workers in South Africa have benefited from Esops, including at Coca-Cola, PepsiCo and Shoprite, he says.
Many were established as part of conditional merger approvals imposed by the competition authorities; others in a bid to meet broad-based BEE (BBBEE) requirements. So it may be that there isn’t a natural appetite on the part of management or shareholders.
Pick n Pay declined to comment when asked about the proposals around an Esop, with a spokesperson saying: “PnP has nothing further to add to the current commentary published.”
One BBBEE adviser who’s worked on several such schemes tells the FM that it’s possible Pick n Pay management believes the shareholders would not give the necessary backing. “In the best-case scenario shares would be issued to the Esop at the current near-record low price, motivated employees would work hard to undo the past decade or so of earnings destruction, profits would start to pump and the share price would surge.”
Which sounds like a win-win. But that’s best case, and it’s long term.
In the immediate future it involves issuing a load of shares at very low prices. That sort of dilution is something no shareholder wants to see. “Pick n Pay shareholders, who’ve seen more than half their investment wiped out over the past five years, may feel they’ve had enough for now,” says the analyst.
Management may have knocked its labour agreement into the no-frills Shoprite shape, but there’s still a cloud of uncertainty over the company’s outlook, what with the Iran war’s energy crisis, moribund consumer sentiment, a barely limping economy and political uncertainty.
Many in the investment community seem to think Pick n Pay should aim to have a share ownership plan. Shoprite has one, and Shoprite appears to be Pick n Pay’s model.
Sharing the good times
Muneer Ahmed, chief investment officer at Aeon Investment Management, says such a scheme would align with industry practice. “An Esop is a great way to keep staff incentivised and morale high, considering the necessary but tough decision to cut certain benefits.”
Protea Capital Management founder and CEO Jean Pierre Verster also supports the idea.
“I think Shoprite has shown how a retailer can structure an Esop on a win-win basis,” he tells the FM. “Retail is known for high turnover at the frontline staff level, so many retailers have found it difficult to structure an Esop with lasting benefits.”
But, Verster says, Pick n Pay has the opportunity to follow Shoprite’s lead and implement an Esop that gives frontline staff a stake in its turnaround without diluting shareholders by much. “Indeed, the increase in staff morale (and consequent increase in customer service levels and satisfaction) could ultimately benefit staff and shareholders alike.”
And the union hasn’t given up on the idea. Parks tells the FM: “Saccawu has tabled it as part of its proposals for the 2027 negotiations.”
