Mr. Price takes to cooking as the clothing retailer diversifies …
The acquisition of Yuppiechef marks Mr. Price’s second acquisition in 20 years and brings the group into a larger LSM customer base. (Photo / s: ARRCC | Gallo Images / Papi Morake)
For the decade leading up to the mid-2000s, retailer Mr. Price couldn’t go wrong. But as of 2018, it seemed to lose its luster as growth and the share price slowed. A revised strategy seems to inject new energy into the group.
Value retailer Mr. Price has acquired Yuppiechef, the high-end kitchenware retailer, for an undisclosed amount which represents 1% of its market cap of R47 billion, which would bring the deal to a value of about R450 million. That’s well below the 5% market capitalization threshold at which the JSE requires mandatory disclosure.
Yuppiechef burst onto the online scene almost 15 years ago, founded by two friends, Andrew Smith and Shane Dryden, who shared a passion for cooking and an interest in cookware. The brand started with 32 products and today offers thousands, including 300 from the world’s biggest brands. The emphasis on quality and service, which saw a handwritten thank you note included with every delivery, convinced a still skeptical audience to buy online.
Fast forward 10 years and the team has recognized that many shoppers prefer the physical store experience. Yuppiechef’s online platform has therefore expanded to include seven physical stores, as well as a wholesale division, which develops and imports branded products for wholesale distribution.
The retail pole is still the most important, representing 85% of turnover, of which 70% via e-commerce.
This acquisition is part of a strategy announced by Mr Price CEO Mark Blair during the presentation of the company’s annual results in June 2020. After 20 years of organic growth, management had identified several category extensions and new concepts that would be pursued either organically or through acquisition, he said. declared.
Blair, the group’s former CFO, took over from Stuart Bird, who retired at the end of 2018. During Bird’s eight years at the helm, the results grew at a compound rate of 18.8% and the group became one of the best performing retailers in southern Africa, with a market capitalization of over R60 billion.
However, lately the growth rate had started to slow, affected by South Africa’s weak economic growth and rising levels of unemployment.
The board, with the blessing of the former CEO, tasked Blair with developing and executing a strategy that would take the group into its next phase of growth.
So, during the presentation of the results at the end of May, Blair announced that Mr. Price would expand his offering to the categories school, baby and novelty and gifts. The school and baby categories each represent markets of 4 billion rand and offer an opportunity to gain market share for incumbents.
The group also announced its intention to raise 3.5 billion rand via a capital increase to consolidate the balance sheet and finance acquisitions.
Six months later, during the presentation of the half-year results, the group announced the acquisition of Power mode, a Durban-based value retailer that is aligned with Mr. Price’s core capability. The acquisition, which represented 4% of its market capitalization, and which was settled in cash, gave the company access to low and middle income households and adds geographic diversity as the stores are located in main streets rather than shopping malls.
At the same time, the company said plans to raise capital were halted because its balance sheet was strong with R6.4 billion in cash and no debt.
The acquisitions would be financed by cash reserves and short-term debt.
The acquisition of Yuppiechef marks Mr. Price’s second acquisition in 20 years and brings the group into a larger LSM customer base.
“I’m generally skeptical of acquisitions because very few of them work,” says Reuben Beelders, chief investment officer at Gryphon Asset Management. “But it seems to fit well because it gives Mr. Price a toe in the water [of higher LSM spending] and access to a rapidly growing online retail space, which certainly seems like the place to be. Hope they haven’t paid too much just to be in this space.
For Yuppiechef, the agreement gives the company access to a larger balance sheet that will allow it to expand its product assortment and expand its physical presence beyond the current number of stores. DM / BM