EXECUTIVE SUMMARY

DESCRIPTION OF CHOSEN FRAMEWORK

• McKinsey 7-S Framework was first created by Richard Pascale, Anthony Athos, Tom Peters and Robert Waterman in 1978.  McKinsey later adapted this framework to help analyze clients’ operation effectiveness. 

• This framework became more and more popular as more McKinsey ex-employees start implementing it internally and business schools start including it in their curriculums.

• The 7-S framework describes seven factors which together determine the way in which an organisation operates. The seven factors are interrelated and, as such, form a system that might be thought to preserve an organisation’s competitive advantage.

• The logic is that competitors may be able to copy any one of the factors, but will find it very difficult to copy the complex web of interrelationships between them.

McKinsey 7-S Framework is made up of seven interdependent factors that determine how corporations are operating:

• Shared Values: Core beliefs and attitudes that drive employee behaviours.

• Strategy: Long-term company plan.  What is the long-term strategic direction of the company?

• Structure: Company hierarchy.  The ways business units and departments are linked.

• System: Formal or informal procedures and processes to get things done in organizations.

• Staff: Employee is always known to be the key asset of your company.  How motivated, trained and engaged are your employees?

• Style: Company management and key personnel’s management style.  How problems get solved by organization leaders.

• Skills: Core competencies and capability of the company.

BRIEF DISCUSSION OF THE CHOSEN ORGANISATION

The Pick n Pay Group is one of Africa’s largest and most consistently successful retailers of food, general merchandise and clothing.

Today, the Pick n Pay Group has a total of 775 stores, made up of Hypermarkets, Supermarkets and Family Stores (which are franchise stores). Pick n Pay employs over 38 000 people, and generates an annual turnover of USD6.76-billion.

It wasn’t always this way, though. In 1967, Pick n Pay was founded as a family controlled business with four small stores in the Western Cape. The next year, the company listed on The JSE Limited Securities Exchange, and from there Pick n Pay grew into the leading retail group it is today. Concentrating on food, clothing and general merchandise, the Pick n Pay Group is managed through three divisions: Pick n Pay Retail Division, the Group Enterprises Division and Franklins Australia. Each division has its own management board.

To find out more about the beating heart of Pick n Pay, read about our Fundamental Principles, our Sustainable Development projects and the people who make Pick n Pay the brand it is today. Today, the Pick n Pay Group has a total of 775 stores, made up of Hypermarkets, Supermarkets and Family Stores (which are franchise stores). Pick n Pay employs over 38 000 people, and generates an annual turnover of USD6.76-billion.

Turnover: R 57.558bn Trading Profit: R 1.295bn Trading Margin: 2.25%Stores: 879 Trading Space: 1,197m2 Employees: 49,200Listed: Yes EBITDA: R 2.056bn HEPS: 189.85 cents

STRATEGY

We continue to transform Pick n Pay into a world-class retailer. We are focused on seven key initiatives in order to deliver on the six-pillar strategy we developed in 2007. We are unrelenting in our determination to put the customer first and to be South Africa’s favourite and most admired grocery retailer.

Seven key initiatives

The seven key initiatives currently receiving management’s main focus are:

1. Smart Shopper

Introducing Smart Shopper is one of the most significant initiatives implemented at Pick n Pay in the last 10 years. Smart Shopper is a thank you to our customers by providing real cash savings for customers on all purchases. It provides us with a deeper understanding of the customer, enabling a more targeted offer. By better understanding our customers we are better able to tailor our ranges, make decisions about store locations and more meaningfully engage with them. It also broadens our supplier discussions leading to improved product development, pricing, promotions, private label and other innovations. We are delighted with how enthusiastically our suppliers have been to come on board with the Smart Shopper programme.

We expect Smart Shopper to be a net expense investment in year one as our priorities relate to driving the roll-out and beginning to incorporate the data into our decision making. We can expect the investment to generate positive returns from the 2013 financial year.

2. Trading space

In the recent past our trading space growth has been below our aspirations for a number of reasons, not least of which is the scarcity of good new developments. We continue to be very selective in our site selection but have a significant number of supermarkets confirmed for the next financial year. There are three major areas where we see opportunity for store roll-out: filling the gaps in our traditional heartland, developing emerging market supermarkets and rolling out smaller stores across all market segments.

3. Buying

We are in the process of moving to category buying. We have engaged external assistance in making the move to a specialist buying function. Category buying will drive like-for-like sales growth, increase gross margin by driving down the cost of goods and further improve private label development. We are currently busy with three category pilots but expect to be complete with the majority of the move to category buying by the end of the 2013 financial year.

4. Supply Chain

We have already made enormous strides in our move to centralised distribution of groceries, with our Longmeadow extension handling more than 1 million cases per week in peak periods and achieving a 20% higher in-stock situation in-store compared to direct to store supplier

deliveries. The immediate priority for Supply Chain is optimising Longmeadow into a blue print that we can roll out nationally. A crucial element of this is the automation of replenishment and our last 100m project which is revolutionising how we handle the all-important in-store component of the supply chain. We continue to look for ways to reduce energy use in our supply chain, and run our warehouses and fleets in an efficient and environmentally responsible manner.

5. Store efficiency

Our goods not for resale (GNFR) team has not only had significant success in achieving more than R50 million savings in the current year (more than R90 million annualised savings) but has revolutionised how we look at these costs, applying a holistic factbase approach to many of the key cost areas in our business to identify and drive savings. They continue to tackle our cost base and we expect that they will continue to deliver more than 10% savings on their in scope costs.

On top of this, we continue to work to simplify regional support structures, removing duplication and driving efficiency. We have a renewed focus on streamlining in-store processes from receiving to checkout, reducing in-store costs and energy use, and leaving the in-store staff with more time to serve the customer.

6. Organisation

We are in the process of moving from a decentralised business to “One” Pick n Pay. The Group Executive has been streamlined to 10 roles and we are busy confirming the next layer of positions. This new structure provides improved role clarity and is a key enabler to our goal of becoming a world-class retailer with highly specialised capabilities. In order to achieve this we are improving our processes for leadership and capability development and are putting in place reinvigorated KPIs and performance management processes.

7. Energy and waste

Operating responsibly underpins all we do. Whilst sustainability is integrated into all the above initiatives, in 2012 we will have particular focus on reducing energy usage and waste. We have already decreased our kWh usage by 14% from 2008 and are aiming for a total savings of 20% by 2014. Our second area of focus is on reducing waste to landfill. We believe keeping on the path of excellence in sustainability is a key part of our goal of being South Africa’s favourite and most admired grocery retailer.

NATURE OF BUSINESS/INDUSTRY

Our banners / stores

Boxer Hardware StoresThe majority of these builders hardware outlets are located in the Eastern Cape province with one store Located in the Province of KwaZulu-Natal. Boxer Build stocks a diversified range of builders hardware products that help the homeowner and build...Hardware11 Stores

Boxer SupermarketsBoxer superstores is a full service supermarket offering everything under one roof including an in store bakery butchery deli and fresh fruit and vegetable department, providing a one-stop shopping experience.

General Supermarkets11 Stores

Pick n Pay Express

The Pick n Pay Express store network is a partnership with BP and uses BP's existing forecourt infrastructure and fuel dealer network to operate the stores. At Present Pick n Pay express operates 12 stores nationally. Convenience Stores11 Stores

Pick n’ Pay Clothing

Clothing & Apparel11 Stores

Pick n’ Pay Hypermarkets

Large Format Hypers20 Stores

Pick n’ Pay Liquor Stores

Liqour194 Stores

Pick n’ Pay Supermarkets

General Supermarkets464 Stores

TM Stores - ZimbabwePick n Pay own 25% of TM Supermarkets which operates in Zimbabwe. As part of their African expansion they have negotiated to purchase a further 24% of the business, this is awaiting approval from the Zimbabwe Government. General Supermarkets464 Stores

OBJECTIVES OF CHOSEN ORGANISATION

To make a meaningful and measurable contribution within the sectors in which we operate.

To forge strategic alliances and develop partnerships/relationships – that are open and transparent –with relevant organisations (Government/NDA/SAGA/Other Corporates and Foundations).

To focus on initiatives that compliment Pick n Pay initiatives.

To work with and align ourselves with Pick n Pay for mutual benefit.

STRATEGIC MANAGEMENT STRATEGY

Latest available company documentation at the year-end (February 2012) notes that it has 941stores excluding in-store pharmacies and auto-centres. It notes 94 stores ex-South Africa: four inZambia, 17 in Namibia, nine in Botswana, ten in Swaziland, one in Lesotho and two in Mauritius and one Mozambique, and 50 TM Supermarkets in Zimbabwe.

In February 2012 the company bought 24 per cent of Zimbabwe operation TM Supermarkets,bringing its total shareholding in the 50 store network to 49 per cent, the maximum foreignownership allowed under Zimbabwean law.

More than 100 store openings are planned for 2012/2013. These include two in Zambia andMauritius and one in Mozambique. PNP also announced stores in DRC, and Malawi in the next 12months. The strategy is to double the number of stores in the rest of Africa in the next 5 to 10 years.

Figure 2: Store growth at PNP

In the last months Pick n Pay has escalated its drive into Africa as it has seen this as the growth

opportunity that could bring the business out of trouble. Its strategy of opening both corporate and franchise stores is set to continue with the expansion of the company.

Pick n Pay's business as well as the expansion into Africa is predicted to be easier now that it hasestablished a centralised distribution system. While the system and the IT to support it are not yetfully functional, funds released from the sale of Franklins will be used to complete this process.

Management reports that at the end of 2012 financial year the system is now improved and moving 1.6 million cases a week from Longmeadow DC in Johannesburg. These lessons are to be implemented in Western Cape Philippi DC in the year to come.

ACTION PROGRAMS

FINANCIAL PROJECTIONS

The annual report reveals that the 2010/2011 financial year ended 28 February was exceptionallytough. The company puts this down to a combination of a difficult trading environment and someinternal challenges. Pick n Pay again fared poorly in the 2011/12 financial cycle.

Figure 4: Revenue at Pick n Pay

Figure 5: Profit at Pick n Pay

While revenues at the company recovered from the dip experienced in 2010, profits at Pick n Pay are down for a second year, by 15 per cent on the previous year. This dip is not mirrored in the dividend payments to shareholders (the majority of whom are the Ackerman family). Despite the poor performance, PNP paid out 75 per cent of earnings in dividends, rather than funding growth.

The reason for poor performance in 2011 was ascribed by analysts to the delay in selling the lossmaking Australian subsidiary, Franklins; its slowness in centralising distribution centres; anoverspend on store remodelling that has not paid off; non-closure of loss-making operations; losing market share to both Shoprite and Woolworths; reliance on franchises; slow expansion into Africa

In 2012 the reason for the performance has been put down to investment in change: ‘most notably the upfront launch costs of Smart shopper, implementation of specialist category buying and the continued investment in CD capability…’

Analysts believe that if sufficient has been done, 2014 is the earliest the results will really reflect this. This does not put PNP in a good position to fight for market share at a time when Wal-Mart’s entry into Africa will make that battle even more ruthless.

IMPLEMENTATION AND CONTROLS

COMMUNICATION

OVERALL DISPLAY AND FEASIBILITY OF STRATEGIC MANAGEMENT PLAN