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Franchise guide

Pick n Pay has a thriving franchise element that interested entrepreneurs can become involved in. Here is all you need to know to start on the exciting path of owning a Pick n Pay franchise.

Franchise: What you need to know

What kind of stores are franchise stores?

Convenience supermarkets ranging in size between 1 500m² and 2 200m²with a full range of fresh food departments: fresh produce, butchery, bakery, delicatessen, groceries and a limited range of general merchandise.

Is Pick n Pay registered with any franchise associations?

Yes, Pick n Pay is an Associate Member of the Franchise Association of Southern Africa. Membership No. F94/0234.

How many franchise supermarkets are currently in South Africa?

Since 1993, 297 supermarkets have opened throughout South Africa, in medium to large towns.

Where should a franchise store be located?

Ideal shopping locations are convenience shopping developments targeted mainly at the L.S.M 4–10 income group.

Who would make a great franchise owner?

The ideal profile for a franchisee is an existing store owner or manager, or a person with previous retail management experience.

Does Pick n Pay provide any training?

There is a comprehensive 67-day initial training programme for the owner, and ongoing training and support in all aspects of operating a successful business. It is necessary for the franchisee to buy a set of Operations Manuals (at a cost of R4 000) once a future store has been allocated.

What is the franchise fee?

One percent of gross actual turnover. This fee is payable with post-dated cheques prior to opening and adjusted at the end of the financial year. This is reviewed annually in accordance with actual turnovers.

What advertising is offered to franchises?

The franchise store benefits from all advertising carried out by the respective supermarket region — nationally and regionally — in all media (print, online and radio/TV). The franchisee can advertise independently according to specifications, with approval from regional buyers on each advert.

What brand guidelines must the franchise stick to?

There is mandatory use of the Pick n Pay brand on till packaging, promotional signage, uniforms and name badges. Franchisees are also obliged to stock the no name™ brand lines, Pick n Pay lines and, dependent on target market, Convenience Meal ranges.

What are the stock opening payment terms for a new store?

Twelve equal weekly payments with the first payment due 14 days after opening. All payments to be made to Pick n Pay Regional Office.
Please note: Opening stock is generally +/- R3.4 million.

What are the ongoing payment terms?

Goods delivered by the supplier or Distribution Centre after the date of opening fall into a 28-day payment cycle from the end of the week statement.

Is a bank guarantee necessary?

A bank guarantee has to be lodged prior to the store opening as security against stock purchased through the Pick n Pay system. The formula will be based on projected purchases via the region. A Notarial Bond to the value of R6 million is also to be registered as additional security.
Please note: Minimum bank guarantee is R600 000.

Is insurance necessary?

Insurance cover has to be provided through an insurer and broker nominated by Pick n Pay.

How does a franchise owner source supply?

All purchases of stock have to be made via the Pick n Pay list of nominated suppliers, with the exception of fruit and vegetables, butchery and cigarettes, which have to be bought from approved and listed suppliers.
General packaging requirements may be purchased from the supplier of your choice (to a standard approved by Pick n Pay), but all till packaging has to be through nominated suppliers.

Who sets the recommended selling price?

Recommended selling prices will be sent from the region to the store electronically. The franchisee undertakes to sell advertised and promotion products at no more than the recommended selling price. The franchisee can also move up prices by no more than 3% from the recommended price.
Advertised lines have to be strictly adhered to. Three percent latitude is allowed on all other lines, which can be accommodated through the point of sale or back office system.

Who decides on the floor layout and design?

Plans will be drawn up by the Corporate Franchise Division.

Establishment Cost		9 512 000
Fixtures, Fittings, Equipment	5 105 000
Computer Equipment	522 000
Stock-in-trade	3 360 000
Sundry Set-up Costs
- Landlords Deposit	92 450
- Stamp Duty	33 000
- Telephone Installation	5 000
- Electricity Deposit	32 500
- Legal/Accounting Fees	19 350
- Training	222 393
- Operations Manuals	4 000
- Uniforms	45 000
- Pre-opening Operating Expenses	71 307

Initial Working Capital		1 065 000
Owner's Cash Contribution	665 000
Overdraft Facility	400 000

Security		600 000
Bank Guarantee	600 000

Total Investment Required		7 291 000
Initial Fee (IF)	Nil
Establishment Cost (EC)	5 626 000
Initial Working Capital (IWC)	1 065 000
Security (SEC)	600 000

Please note: These costs are estimates based on actual costs incurred and may vary depending on size and location of store.

What about funding?

The below information will assist a potential franchisee to determine how the total investment may be funded and what funds the franchisee is expected to invest in setting up the business.

Investment before borrowing
These are the funds the franchisee is required to invest in setting up the business before any other borrowings or financing. The franchisee’s investment will generally be made up of two components:

Free, unencumbered cash
Acceptable tangible security, including:
- Registration of a second mortgage bond over the unbonded portion of fixed property.
- Fixed deposits
- Surrender value of life policies ceded
- 50% of the value of equities or unit trusts ceded

The franchisee’s investment is set out below:

Investment before borrowing
Establishment Cost	9 512 000
Franchisees Investment
- Unencumbered Cash	665 000
- Acceptable Security	1 330 000
Total	1 995 000

Please note: The above is the minimum amount a franchisee would be expected to invest in the business. These amounts may increase depending on the size and location of a specific site. It is also based on a developer’s contribution of R400 000. Should this contribution not be forthcoming for any reason, the franchisee’s required investment will increase accordingly.

What now?

If you meet the above criteria and are interested in owning your own Pick n Pay franchise, email a detailed CV for each intended partner in the business, and the area you are interested in trading in, to asmith@pnp.co.za
Your suitability will be assessed, and when a store becomes available, the most suitable candidates interested in the area will be interviewed. Following the interviews, a franchisee will be appointed.