Would a merger make sense as PnP and Takealot are getting closer and closer?



Pick n Pay’s May announcement of an on-demand grocery offering on Takealot’s Mr D app caught the industry by surprise. The market originally saw this as a neat, purpose-built endeavor.

However, since the Mr. D deal went live in August, the two retailers have grown closer.

More than one veteran operator in space has quietly questioned whether a deal between Pick n Pay and Bring away would make sense?

ALSO READ: Fuel Dealers Want Oil Company Help With Load Shedding

In many ways, an on-demand grocery partnership was a rare example of a win-win partnership: Pick n Pay Access to more than 2.5 million active customers through the Mr. D. app while giving Mr. D. a scalable solution to his on-demand grocery and liquor problem.

requirement

Consumers are increasingly relying on companies like Uber Eats and Mr D for convenience products like bread, milk, beverages (soft and non-soft), snacks and ice cream. This need has largely been met by smart fuel station operators, who are often listed on the platforms with absurd price premiums to make the model work.

Uber Eats has launched competitively priced first-party markets in key hubs for a limited selection of groceries and convenience items.

Providing a choice of over 10,000 groceries and grocery items at more than 300 Pick-n-Pay stores on Mr D – crucially at the same price as in-store – was something of a coup.

For the country’s second largest supermarket group, this deal meant additional scale for their in-store picking and packing teams, who were already processing orders for their Pick n Pay as quickly as possible! app as well as the traditional online shopping offer. Whether an order is processed for one of your services or for Mr. D. is operationally irrelevant.

Because food margins are razor thin, size matters.

(Also, this partnership benefits PnP as it’s already catching up on the runaway success of Checker’s Sixty60… remember, it was practically forced to buy the Bottles app from its founders during the Covid-19 pandemic.)

This month, Pick n Pay said the Mr D service “has already been rolled out to over 300 stores with incredible success”.

Due to the very aggressive promotion of the offer, some major hurdles in sales and order volume are clearly expected from both sides. First-time buyers can get R100 off their grocery order of over R200 until the end of the month and have a chance to win R10,000 every week. PnP also offers incentives to members of its Smart Shopper loyalty program, including discounts and free shipping.

In addition to Mr D

The commercial services deal signed between the supermarket retailer and Takealot focused on scaling an on-demand grocery offering to Mr D. However, he claims he is “open to new and exciting pilot projects that will give his customers multiple options for shopping online Offer”.

Having launched a standalone Pick n Pay Home online store last year, it has also listed more than 500 general merchandise products – such as refrigerators, microwaves, ink cartridges and swimming pools – on Takealot’s main website. Prices are very competitive, but longer delivery times (sometimes more than five working days) compared to Takealot’s own products remain a deterrent.

For Takealot, this fits into its standard marketplace platform, which allows third parties to list and sell products on the site. The delivery times – especially for larger items – suggest that Pick n Pay ships to Takealot for fulfillment (rather than using their storage space) when the order is placed. For Pick n Pay it opens up another channel for the general sale of goods.

Extension of physical range

The latest move saw the two retailers pilot a Takealot pickup counter at the Pick n Pay store at Table Bay Mall in Cape Town from mid-December.

Both have been very careful to stress that this will take three months before deciding whether or not to expand to more stores, but said: “The results at two weeks [were] already very promising”. Specifically, the counter started a week before Christmas Day and reached collection capacity within two days.

Pick n Pay has already enabled space in its stores for on-demand delivery (serving PnP asap!/Mr D orders) and these counters will generate additional footfall, resulting in more shopping carts through the checkout. A reasonable occupancy fee will be compared to the rental costs.

For Takealot, this solves a major problem as it expands its pickup point network. No rent, no building maintenance. A computer terminal, a network connection and employees who work shifts at the counter. What could be easier?

Expanding into areas where Takealot doesn’t have pickup points is a no-brainer, especially when there are Pick-n-Pay stores on or near truck routes to the regional or neighborhood sorting centers. After all, a pickup point is just an address on a package, whether it’s a Takealot or Pick-n-Pay location.

Targeted introduction of these switches ensures Takealot has a nearly unrivaled pickup network in the major centers.

Over time, this scale will result in a more efficient delivery network. Off-peak, Mr D drivers can drop off packages picked up by Takealots Hubs at an in-store pickup counter and immediately complete a delivery from the PnP to a Mr D customer (real-time demand can be stimulated). ensure orders are picked and ready in stores).

All this will further reduce the shipping cost.

A merger?

Which brings us to these private “open questions” from reasonably informed circles about a possible transaction between the two parties…

The market has generally assumed all along that Nasper’s plan for an “exit” of Takealot was a sale to Amazon.

But what does Amazon need Takealot for? It could be argued that the latter’s only competitive advantage right now is its first-party delivery network (built on Mr. D.). Replicating this will take time and money. A strong courier partner could solve this in the short term (and that’s almost certainly the route Amazon will take initially), but the economics won’t work until volumes are significant.

So how will Takealot compete when Amazon arrives? Does it have the scale to rival the world’s top online retailer?

On paper, the rationale for a merger (or buyout, or whatever structure makes the most sense) seems compelling.

There is very little overlap (and there should be no competition concerns).

And there’s an added bonus in that it solves a problem for Naspers, which has no assets other than Takealot and an old media business aside from the Prosus cross-shareholding.

Pick n Pay offers an extensive physical footprint, decades of retail experience and an incredibly valuable loyalty program in Smart Shopper (with an 80% participation rate).

Takealot offers robust top-line growth, a strong position in general merchandise, a very attractive third-party marketplace, and a logistics network that is the envy of many competitors.

Imagine the possibilities of merging the general goods supply chains of Pick n Pay and Takealot. Walmart (and Massmart) would drool at the prospect!

The payment

For the past six months (to September), Takealot reported flat selling across its three platforms in dollar terms. However, in Rand this was an increase of around 15% to R11.6 billion. The trade loss was somewhere in the region of 200 million rand. Notably, gross merchandise value (GMV) in the third-party market increased by 27%.

By comparison, Pick n Pay reported interim sales (to August 28) of R51.3 billion. Its normalized trading profit was R1.2 billion.

The Black Friday peak trading period and the festive season will bring major second halves for both.

Taken together, this is likely a deal currently worth more than R130 billion.

And both complement each other, especially when you consider what the general goods and food landscape in the middle and upper income segments will look like in five years.

(It would be fair to ask if there would be any efficiency gains at Superbalist.com and Pick n Pay Clothing.)

Does either one need the distraction of a combination right now, with all the execution risk that entails? Probably not. (And it goes without saying that any significant decision like Pick n Pay’s would require approval from the Ackerman family, who retain 25% of the business.)

The danger, at least for Pick n Pay, is that it becomes more intertwined with Takealot as it pursues its stated goal of growing online revenue eightfold by fiscal 2026. What if Takealot is swallowed up by a rival company (maybe even a global one) and low-margin, on-demand grocery delivery just isn’t such a big priority going forward?

This article originally appeared on Moneyweb and has been republished with permission.
Read the original article here.

READ NOW: Banking apps to turn your smartphone into a POS for your small business

Leave a Reply

Your email address will not be published. Required fields are marked *