Pick n Pay’s Happy Hour Promotion: Boosting Sales or Sacrificing Margins?

Since October, Pick n Pay, a leading supermarket retailer, has been enticing its Smart Shopper members with generous discount vouchers during specific times and days. Let’s delve into the details and implications of this promotional strategy.

Happy Hour Discounts: Up to 50% Off Your Entire Basket!

As part of the Happy Hour promotion, shoppers can enjoy discounts of up to 50% off their entire basket. Imagine getting R500 off a purchase of R1,000 or more! This promotion extends to specific time frames, such as a compelling R100 off R300 for purchases made between 11 am and 12 pm on Fridays.

Slim Margins Challenge

However, the grocery retail industry operates on notoriously slim profit margins. Pick n Pay’s trading margin for the 2023 financial year was a mere 2.7%, dropping to 0.1% in the six months to end August. Even the esteemed Shoprite boasts only a 5.5% trading margin. Notably, Smart Shopper members already enjoy a 0.5% margin sacrifice, which was even higher in the past.

Unprecedented Discounts: A Risky Business Move

Pick n Pay appears to be guaranteeing sales at a loss by offering blanket discounts across entire baskets. With margins ranging from 20% to 50%, the company may be losing between R250 and R500 on every R1,000 in sales during Happy Hour. The question arises: Why?

Growth Pressures and Marketing Strategies

Despite modernizing efforts and store facelifts, Pick n Pay’s core banner sales growth has stalled, with a meager 0.3% increase between February and August. Internal selling price inflation of 8.3% is not compensating for an alarming 8% year-on-year drop in volumes. This led to the abrupt replacement of Pieter Boone with Sean Summers in October.

Happy Hour: A Marketing Investment or a Desperate Move?

Pick n Pay frames Happy Hour as part of its Smart Shopper program’s modernization, emphasizing engagement. Speculations suggest that these discounts may be funded from the marketing budget, as marketing spend has consistently increased in the last 18 months.

Sustainability Concerns

While the initiative may stabilize sales growth, sustaining such deep discounts seems unsustainable in the long run. The company needs to convert these subsidized visits into consistent customer loyalty to recover its investment.

The Pressure on Summers: A Two-Year Turnaround Plan

Under the leadership of Sean Summers, Pick n Pay is under immense pressure to revitalize its core business. The question remains: Can Summers turn the needle in the next two years? The success of the Happy Hour promotion and other strategies will play a pivotal role in determining the company’s future profitability.