Pick n Pay opened 59 franchise stores over the past year – here’s how much it costs

  • April 26, 2018 10:41 am
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Retailer Pick n Pay says it opened 59 franchise stores over the past year, including seven supermarkets, 35 liquor stores, nine express stores and eight spaza shops.

The group, excluding TM Supermarkets, opened 124 net new stores between February 2017 and the same month in 2018 (153 additions, 29 closures), adding 3.3% to its total space. New stores contributed 3.1% to turnover growth.

This included 72 new Pick n Pay company-owned stores and 22 Boxer stores across all formats, it said.

Pick n Pay on Thursday (19 April) published its annual financial results for the year ending February 2018. Turnover grew 5.3% to R81.6 billion, while trading profit climbed 4.9% to R1.82 billion

Diluted headline earnings per share amounted to 271.61 cents, up 7.7%

In the first half of the year Pick n Pay implemented a voluntary severance programme (VSP) which improved efficiency and productivity, but had a once-off cost of R250 million in severance payments. Excluding these VSP payments, trading profit for the year was up 19.3%, with trading profit margin improving from 2.2% to 2.5%, the group said.

“Through the VSP and other actions, the Group has built a leaner, fitter operating model, with more headroom to give customers lower prices and better promotions. The benefits were evident in an exceptional Q4 trading performance, with the Group’s South African segment delivering sales growth of 8.0% (LFL 5.3%).”

The group opened 29 clothing stores during the year.

At the end of February, the group had 1,685 stores, including 57 stores held through its investment in TM Supermarkets in Zimbabwe.

Franchise

The company has just under 300 franchised supermarket stores in South Africa. The franchise division contributes between 45% to 55% of group turnover.

There is a comprehensive 67-day initial training programme for the owner, and ongoing training and support in all aspects of operating a successful business. It is necessary for the franchisee to buy a set of Operations Manuals (at a cost of R4,000) once a future store has been allocated.

Pick n Pay’s franchise fee is 1.25% of gross actual turnover. This fee is payable with post-dated cheques prior to opening and adjusted at the end of the financial year. This is reviewed annually in accordance with actual turnovers, the group said.

Investment before borrowing

These are the funds the franchisee is required to invest in setting up the business before any other borrowings or financing. The franchisee’s investment will generally be made up of two components:

  • Free, unencumbered cash; and
  • Acceptable tangible security, including:
    • Registration of a second mortgage bond over the unbonded portion of fixed property.
    • Fixed deposits
    • Surrender value of life policies ceded
    • 50% of the value of equities or unit trusts ceded

The franchisee’s investment is set out below:

table

Pick n Pay noted that the above is the minimum amount a franchisee would be expected to invest in the business. These amounts may increase depending on the size and location of a specific site. It is also based on a developer’s contribution of R400,000.

Source: BusinessTech – https://businesstech.co.za

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