South Africa's supermarket chain Pick n Pay has denied industry speculation it might be ripe for takeover by a foreign retailer such as the  U.K.'s Tesco.

Retail analysts have said following Wal-Mart's takeover of Massmart last year, competition in the South African supermarket sector would increase as the U.S. colossus drives down prices.

Planet Retail global research director Natalie Berg, said the Wal-Mart/Massmart merger had prompted a lot of change.

"All the domestic retailers in South Africa are scrambling, they are trying to streamline their costs in the face of Wal-mart. It will take 18-36 months before they (Wal-Mart) integrate South Africa into their business, they will bring lower costs to the customer," she told www.freshfruitportal.com.

Berg added there were documented cases of Wal-Mart driving down inflation following entry to new markets.

"The domestic players cannot compete with Wal-Mart on price and they shouldn't attempt to - there needs to be a differentiation to Wal-mart and they should play to their differences."

Berg pointed to the potential of attracting South Africa's rising middle class with Pick n Pay's premium own brand range called 'finest', an initiative which Tesco launched in its U.K. stores back in 1998.

"Their business model is very similar to Tesco's particularly on private labels. This is where we will see the biggest change in South Africa. I think private labels are extremely underdeveloped and it's a fantastic tool to drive margins and create differentiation."

Tesco is an international retailer with stores in Southeast Asia, the U.S. and Eastern Europe. In June, Tesco announced in its interim trading statement that U.K. like-for-like sales, excluding petrol and VAT, had dropped by 1.5% for the first quarter.

South Africa would offer an international company, such as Tesco, a foothold into the potentially lucrative African market.

Some analysts have commented Tesco's priority should be to concentrate on improving its performance in the U.K., which despite the recession in Europe is still its most important market.

Pick n Pay has 775 stores, comprising supermarkets and franchised family stores, with operations in Kenya, Zambia, Swaziland and Lesotho in addtion to South Africa.

Pick n Pay spokeswoman Tamara Veley said there were no plans in the pipeline to merge with the U.K. retailer.

"We frequently engage with a wide variety of international retailers on matters of mutual interest. We will continue to look at opportunities for delivering shareholder value but we are not currently in any negotiations with Tesco."

Tesco was unavailable to comment about any proposed alliance at the time of going to press.

Wal-Mart has already announced it intends opening a Game store, Massmart's basic wholesale food subsidiary, in Nairobi which could pave the way for it opening fresh produce retail outlets.

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Photo: Pick n Pay

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