South Africa’s second-largest grocery retailer Pick n Pay has launched a premium private-label line.

South Africa’s second-largest grocery retailer Pick n Pay has launched a premium private-label line. The launch of the Finest range not only represents another strategic initiative modelled after Tesco, but also indicates that domestic retailers must differentiate in order to compete with Walmart.

Pioneered by Tesco, the good-better-best approach to private labelling is now a common strategy pursued by retailers around the world. A tiered approach enables retailers to cater to the growing cherry-picking trend among shoppers.

In particular, Pick n Pay’s Finest line will resonate with the country’s burgeoning middle class, many of which will be tempted by new restaurant quality food at competitive prices. Aside from Woolworths, most retailers in South Africa have traditionally shunned premium private-labels, instead having opted to focus on economy and standard lines.

The country’s geographic isolation and consequent lack of suppliers has made it difficult to grow private-label sales. However, Pick n Pay has been working to change this, growing its share of own-label from 11% to 29% in recent years.

Looking ahead, a combination of a growing middle class and the recent entry of Walmart will require a shift in thinking, not only for Pick n Pay, but for all retailers in Sub-Saharan Africa.

Although Walmart is quickly working to integrate Massmart’s operations, its real impact has yet to be felt. Walmart will not only stimulate private-label development in the market, but will require local retailers to focus on driving operational efficiencies and review their own pricing strategies.

Walmart is rolling out EDLP to all international operations and South Africa, despite the promotional nature of its market, will certainly not be an exception. Domestic retailers simply cannot compete with Walmart on price and therefore investment in initiatives such as private-label and format development are key.

Pick n Pay has been doing all the right things in order to make itself a more competitive player. Therefore, it’s no surprise that it has been linked to Tesco as a potential future acquisition target, especially when considering the strong overlap in merchandising, store formats and shopper-centric strategies.

Despite the resistance Walmart faced upon its entry, it’s fair to say that the retailer is certainly acting as a catalyst for change.

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