The appointment of former Tesco UK chief Richard Brasher as Pick n Pay's new CEO last week may not be enough to turn around the fortunes of the South African supermarket operator, some analysts have suggested.
Brasher, who will relocate to Cape Town to take up the role from February, was appointed to the position following an "extensive international search" by Pick 'n Pay after the retailer's former CEO Nick Badminton stepped down in February this year.
Brasher is well-known in the UK for his role at Tesco, which he joined in 1987. Appointed to the board in 2004, as the retailer's commercial director, he has been credited with creating Tesco's international sourcing operation, developing its Clubcard loyalty programme and transforming its non-food operation. However, Brasher left Tesco under a cloud in March this year after an apparent clash with group CEO Philip Clarke over the company's strategy for its domestic business, which, relative to its growth in the last two decades, has struggled in recent quarters.
Pick n Pay has had its own questions to face. It reported a 10% slide in full-year earnings in April. The drop was down to the group's considerable capital investment programme. The company has repeatedly insisted that declining earnings are the consequence of necessary investments aimed at transforming the group into a "world-class retailer".
Pick n Pay chairman Gareth Ackerman, who has been covering the role of CEO for the past eight months, believes the company is "extremely fortunate" to have secured Brasher. It is the first time Pick n Pay has appointed a CEO from outside its own ranks, but Ackerman is confident Brasher's experience will "stand him in good stead across all major areas of the Pick n Pay business".
Analysts, however, are less confident that, despite Brasher's experience, he has what it takes to turn the fortunes of the struggling retailer around.
"We know what [Brasher has] done and where he's been but I think this business has got a lot of structural problems and it's going to take time for anyone coming in, and capital," said 36One Asset Management analyst Even Walker.
"The problems at Pick 'n Pay are quite structural and quite deep-seated, so I doubt very much if the business will be able to return to it's prior-year levels of profit any sooner [with Brasher]. Any new CEO will have to invest a good five years before we start to see the benefits of any structural turnaround at Pick 'n Pay."
Walker believes Brasher's main challenges will be the country's "militant labour union", in addition to productivity issues, which he said he'll "have a tough time fixing". He adds: "It's going to be messy."
Indeed, late last year, Pick n Pay had to thrash out a deal for flexible working with its workers' union after announcing it was looking to cut around 10% of its 36,000 workforce. Union officials managed to reach a deal that saved 2,000 jobs.
Aside from labour issues, however, Walker says Brasher will have to deal with the family behind Pick n Pay if he wants to make any investment decisions. Particularly in a company in which capital has, for some time, been constrained. He may need to spend as much time understanding the family dynamic as he will understanding a new company and a new country.
"The business is family-owned and it has stripped that business of all capital ... they pay out all of their earnings as dividends and there has been very little capital retention in that business for many years, the capital retention has been destroyed," Walker tells just-food.
"Whether the family allows him to reduce that dividend, ie pay less cash out, that's going to be an interesting thing for us to watch, to see if he can retain any more capital in that business because I think he's going to need a lot more capital to grow the business and to restructure it. I don't know if that is going to come with the family's vote - that is going to be the most contentious issue for him, how does he grow that, how does he restructure the business in an environment where capital has been constrained."
Chris Gilmour, an investment analyst with Absa Asset Management, shares Walker's view that Pick n Pay's problems are "very deep and manifold", but believes the group is "moving in the right direction".
"It's difficult for one person to be able to turn this thing around," he tells just-food. "Nick Badminton, the previous CEO was really doing a great job in turning this thing around but he cautioned it would take until 2014 at the earliest before we would see any indication of any turnaround at Pick n Pay and I think he's right."
Nonetheless, Gilmour believes Brasher has "got what it takes" in terms of procurement and off-shore sourcing, which he says "will become critical" for Pick n Pay.
"Lending a new eye with no baggage in it will be very helpful here," he says. "Sometimes you get people that are too close to the action and they can't see the wood for the trees. Brasher will be able to lend a very detached view. Other than what happened with Clarke, Brasher has had a pretty unblemished record at Tesco so he'll be able to bring 25 years of fantastic international experience to the fold. That will be invaluable. But time will tell unfortunately."
