When profits are the reward, not the target...


RaymondAckerman.jpgRaymond Ackerman is an open book when it comes to the driving motivation behind building a multi-billion Rand company: seeing profits as the reward, not the aim. The philosophy held by the Pick n Pay (PnP) founder, exceptional businessman, role model, billionaire, ambassador, and visionary is desperately needed in today’s economy, says entrepreneur virtual incubator The Hope Factory.

In this month’s SmartProcurement The Hope Factory briefly outlines Raymond Ackerman’s blueprint for building a business with vision, from his autobiography Hearing Grasshoppers Jump and The 4 Legs of the Table, and how these principles are valuable for developing emerging suppliers.

In the early 1960s Raymond Ackerman attended a seminar facilitated by Bernard Trujillo, a marketer whom Ackerman considered to be one of the greatest influencers of the century. Trujillo described the “four legs of the retail table” as a method of implementing consumer sovereignty, a concept Ackerman applied to every element of his company. In essence, each leg needs to be equally strong in order to balance the table, which represents the business.

The four legs comprise:

1. Administration refers to various administrative controls, finance and store development – in brief, the mechanics of running the business. This leg also has an important philosophical aspect that relates to return on profit as well as capital. A policy of not maximising profits is based on Ackerman’s belief that profit maximisation is an outdated business philosophy. Throughout its history PnP has avoided this pitfall by buying heavily forward on a rising market to keep prices down in an inflationary climate.

"You will fail to find this business practice in most economic textbooks. In fact, you will learn about price skimming, price collusion and price fixing, but not much on avoiding profit maximisation. What do you think was the fruit of this? Well, PnP has generated an operating profit of R60-billion over the last 20 years," says The Hope Factory.  

2. Merchandise is the product of establishing what consumers really want, and providing it at the right price and in the right environment. Ackerman remembers Bernard Trujillo defining this leg of the table as “desirable merchandise openly displayed and readily accessible”. PnP takes this definition one step further in its marketing policy of supplying specific merchandise to suit the needs of a particular market. A readiness to engage in conflict in the name of consumer sovereignty is central to Ackerman’s belief that if he can supply any item to the consumer at a lower price, they have the right to it. Price regulation is not part of his vocabulary.

Ackerman related how he took on three of the most regulated and monopolised industries at different times in his life. First, the tobacco industry. On one occasion he purchased cigarette stock over a six-month period to create what he termed “the most flammable warehouse in the world”. PnP then supplied the market with cigarettes at a greatly reduced cost by covering some of the excessive taxes on behalf of the customer. On another occasion he sparred-off against the petroleum industry, selling petrol from his Boksburg hyper at prices that dramatically undercut the regulated price of the day. Finally, and still not satisfied with kicking the hornets’ nest, he took on KWV Cellars by trying to get a liquor license in the 1980s, ground that even angels feared to tread.

In the world of emerging entrepreneurs, where accessing markets remains a primary barrier and growth inhibitor, this spirit must continue today, notes The Hope Factory..

3. Ackerman maintains that PnP has always regarded advertising and social responsibility as two sides of the same coin, with “doing good is good business” underpinning all of PnP’s social investment initiatives. This not only means doing good for the customer, but also empowering employees with the resources they need to grow and improve their lives. Ackerman describes how PnP contributes around six per cent of after-tax profit to community development programmes, believing that consumerism and social responsibility are inextricably linked. “Profits are the bloodstream of our economic world, but social responsibility is woven completely though a businessman's whole existence.”

4. People. Without the company’s people the retail table would be unbalanced. Good working conditions, better rate of pay than competitors, fringe benefits that include housing loans and a genuine interest in the welfare of every staff member, are pivotal to the way PnP does business, says Ackerman in his book. Providing opportunities for growth and promoting people from within the company are PnP principles. Recruiting from outside the company takes place only in exceptional circumstances. Employee benefits include the ‘Parental Rights Agreement’ negotiated in 1987, as well as the Company’s Share Incentive Scheme, through which nearly 80% of employees have acquired shares to date.

These four building blocks of PnP’s social conduct were laid down by Raymond Ackerman more than 42 years ago at the opening of his first four stores in downtown Cape Town. Ackerman stood for something more than just selling food. He had a vision for the South African food retail market, and how he could best serve his customer. He also happened to become a billionaire in the process.

The Hope Factory asks entrepreneurs if they have a vision for what they are doing, and how they could better serve their customers; South Africa’s future economy depends on how our small entrepreneurs of today answer this question. Ackerman’s life reads like a blueprint for assisting our aspiring entrepreneurs of today to better understand the role their businesses play within the South Africa of tomorrow. The Hope Factory has committed itself to assisting this understanding for the foreseeable future.

“Will any of us find the courage to be the Raymond Ackerman of tomorrow? For the sake of our nation, we hope so!”

For more information on entrepreneur virtual incubation and mentoring, visit the The Hope Factory.

Some of the information sourced from picknpay.co.za 

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