Pick n Pay Supermarkets A major phenomenon in retailing in South Africa has been the emergence of supermarkets and hypermarkets. (A hypermarket is a very large supermarket usually more than 3600 square metres on the outskirts of a town or city). These sell large quantities of groceries and other consumer goods mostly on a self-service basis. They often buy directly from the manufacturers so cut out the wholesalers. They operate on low profit margins and rely on selling vast quantities of goods. There are a number of large supermarket groups in South Africa, which now account for more than 55% of national retail food sales. The number of supermarkets leads to stiff competition so maintaining profit margins is critical. Pick n Pay is a home-grown retailing group that was started in 1967 with four small stores in the Western Cape. The business has subsequently grown into a major, international retailing group. Pick n Pay supermarkets sell fresh foods, groceries, general merchandise, clothing, liquor, and medicines. Most goods are self-service with staff service on deli counters and pharmacy counters. In-house bakeries take special orders from customers as well as baking throughout the day. Pick n Pay operate on an average gross profit margin of around 18 to 19% and an average net profit margin of around 3 to 3.5%. For supermarkets, along with other large retailing businesses, calculating the net profit margin on individual groups of products can be difficult. Retailers are often quoted as saying they know the gross margin of everything and the net margin of nothing. This is because there are a multitude of costs that products can attract between arriving at the back of the store and passing through the till when the customer purchases them. For a true unit cost to be established, each of these costs needs to be considered.

Questions for discussion:

1. Explain why it is important for Pick n Pay to identify unit and or product group-based costs and the difficulties Pick n Pay may experience in costing different items and product groups.

2. What is a unit or product group?

3. What are the difficulties of costing items and product groups?

4. Explain why different items and product groups will attract different costs between arriving at the back of the store and reaching the till.

5. Discuss the benefits of Pick n Pay using activity-based costing to identify costs from arrival at the store to purchase at the till and explain how this might operate.

6. How will ABC be operated in a supermarket?