July 2, 2004

By Michael Cohen

Johannesburg - Pick 'n Pay, the grocery chain that doubled sales over the past four years, did not expect any let-up in growth as the lowest interest rates in 23 years continued to fuel consumer demand, it said yesterday.

"We are seeing strong increases in volumes in the business," chief executive Sean Summers said in an interview. "The market continues to grow. We don't see any end to our current growth."

The Reserve Bank cut borrowing costs five times last year, which helped Pick 'n Pay boost sales by 12 percent to R30.4 billion in the 12 months to February as net income climbed 14 percent to R515.7 million.

A declining inflation rate has also left consumers with more money to spend on food, toiletries and household goods, Summers said.

Since the beginning of 2002, South Africa's consumer inflation has fallen to
4.4 percent from 10 percent, as the rand gained 94 percent against the dollar, cutting the cost of imports. Above-average rains this year helped temper food price increases.

"Food inflation for us is below 3 percent," Summers said. "Deflation in general merchandise continues, and obviously with the continued strengthening of the rand, that trend should continue."

Pick 'n Pay had no plans to buy new businesses or expand into other counties and intended growing its existing units in South Africa, Swaziland, Botswana, Namibia and Zimbabwe, Summers said.

Plans to open 15 main Pick 'n Pay stores, 20 Family stores and six Boxer outlets in the coming year remain on track. 

The company's expansion has seen it overtake Shoprite Holdings as South Africa's largest grocery retailer.

Its shares have risen 30 percent over the past 12 months, while Shoprite's have gained 53 percent.

"Pick 'n Pay has grown its market share and we continue to grow our market share," Summers said.

"We are taking business away from our opposition. Some of the chains have had very good growth over the past few years have come off the boil a bit, and that growth has come to us."

Pick 'n Pay is implementing a new distribution system for its Franklins stores in Australia, following its decision in January last year to end a supply agreement there with Metro Cash & Carry, Africa's biggest food wholesaler.

Franklins' trading losses narrowed to R5.5 million from R56.2 million in the year to February.

We are taking "a medium-term view of the business", Summers said. "The additional costs we will occur in Franklins this year will not be material with regards to the group."

Pick 'n Pay had no plans to sell part of the business for black economic empowerment, said Summers. "There is nothing on the horizon in terms of equity for black investors."

Pick 'n Pay shares gained 65c to R18.16 in Johannesburg yesterday, while the food retailers' sector gained 2.56 percent.