The Retailer

Johannesburg - Proceeds from the sale of the Australian business Franklins will help Pick n Pay Stores [JSE:PIK] fund the roll-out of distribution centres, CEO Nick Badminton said on Tuesday, as the group tries to catch up with competitors on supply chain efficiency. Having extended its only distribution centre (Longmeadow in Gauteng), Pick n Pay plans to invest over R2bn to set up four other distribution centres over the next three years in Gauteng, KwaZulu-Natal, Western Cape and Eastern Cape.

Pick n Pay was the last of SA's major supermarket groups to commit to a streamline supply chain, resulting in compromised supply efficiencies.

"Our decision to move to a centralised distribution centre was motivated by changes in South Africa's retail landscape which had seen us fall behind our competitors, who were investing significantly in supply chains and improved services to their stores through centralised distribution systems," said Badminton.

He was speaking at the official launch of the extended Longmeadow distribution centre, whose total cost amounts to R628m.

Pick n Pay recently announced it had decided to sell the struggling Franklins division for R1.4bn to Australian company Metcash. The group will use the proceeds to fund its capital projects, including distribution centres, refurbishment and new stores.

Badminton said throughout the world the most successful retail groups have unlocked massive value from their supply chains, and most of them have moved away from direct to store delivery distribution.

"We were also driven by the realisation that our distribution operations were running over capacity and had become inefficient, resulting in stores being overstocked and a deterioration in customer service levels," said Badminton.

Besides the Longmeadow distribution centre, Pick n Pay currently operates several warehouse centres throughout the country. The group has 99 000m2 of distribution capacity, and plans to increase that to 280 000m2 over the next five years.

Longmeadow is operated by logistics company Unitrans, a subsidiary of diversified group Steinhoff International Holdings [JSE:SHF], through a partnership agreement.

After the extension, the centre now services 284 stores. It will up its capacity from 20% to 40% of grocery distribution to the group's inland region by October.

Pick n Pay competitor Shoprite Holdings [JSE:SHP] operates 11 distribution centres in Guateng, KwaZulu-Natal and the Western Cape, while the Spar Group [JSE:SPP] operates six, in the same three provinces plus the Eastern Cape.