PG Holdings has submitted an application to build up over the footprint of the old Alhambra cinema in Sliema, enlarging its current Zara outlet by a footprint of some 900 square metres, and making it one of the largest in Europe.
The current store is spread over two floors with a few flats overlying them. However, the air space behind them – the old cinema – belongs to the group.
Chairman John Zarb, who was appointed last November, said that the location was unbeatable and was considered one of the best on the island for retail.
The group did not dive in but first identified what the restrictions would be for the site and then submitted an application to the Planning Authority to add six or seven floors behind the flats – meaning they will not be visible from the Ferries.
The shop will have two floors dedicated to women, one for children, one for men, and one for Zara Home – with the rest to be used as stores.
Assuming that the permit process goes as intended, construction should start by the end of this year. The existing store will be closed for the shortest time possible for renovation, with the two then being linked and opened by the end of 2018.
Zara remains one of the mainstays of the group, with 15,000 customers a week.
“Zara wanted to increase its presence and our discussions were based on whether we should have multiple outlets or one larger one. The overseas model is to go for larger units of up to 5,000 square metres…
“There is an enormous range of Zara products that we cannot currently exhibit due to space, which will change dramatically with the new outlet. We think this will make more sense than to have two or three small shops,” Mr Zarb said.
The man behind PG Holdings is Paul Gauci, who has a soft spot for the Zara franchise – which he built up on his own. His story is the stuff of legend. He and his siblings started off with a small outlet in Birkirkara, Big Ben, which has expanded into arguably one of the largest retail operations on the island.
Around nine years ago, the brothers split the businesses and he took over the Alhambra building in Sliema. He was also one of the lead investors and drivers for the investment in the Westin, a shareholder in Banif Bank, as well as building up many other businesses in the meantime.
Over a decade ago, he and his brother-in-law Victor Grech opened Pavi supermarket, at the time a groundbreaking investment. The vision was to have a supermarket unlike anything seen in Malta till then: purpose-designed and built on one floor.
He believed that supermarkets needed to attract visitors and that the business would come from retail outlets associated with the anchor tenant.
In hard times, people spend less and go for cheaper items. But we feel it less than others… It is much easier to cut down on eating out and on clothes, for example
“It had to be a destination where someone would come to shop and be able to leave with a large proportion of their day-to-day requirements – instead of having to go to separate outlets like a butcher, a greengrocer, a florist, a stationery and so on,” Mr Zarb explained.
This business model led to Pavi, which has 20 outlets apart from the supermarket, as well as specialist sections like the butcher, health food outlet, the bakery and so on which are operated by third parties, which pay rent and have a revenue-share agreement.
Artists’ impression of the new Zara outlet in Sliema“This is all invisible to the client – who only receives one bill – but the employees work for the third parties and Pavi remains responsible for the overall quality and monitors the prices, since a concessionaire which is not profitable would affect the whole supermarket. We want to be sure that they are offering good value for money,” Mr Zarb said.
Mr Gauci eventually bought out Mr Grech in August 2015, and just a few months later opened Pama in Mosta, based on the same business model.
The supermarket is slightly smaller than Pavi, and is also on one floor, but it has a much larger parking area spread over two floors, with twice as many spaces as Pavi’s 500. The concession relationships at Pavi worked so well that most of them followed the group to Pama. In all it has 40 outlets (including a Zara Home) – many in a separate mall opened late last year – as well as the operators within the supermarket.
“The success of Pama has exceeded our wildest expectations – well, perhaps not Paul’s,” he smiled, “but those of other people.”
Pavi handles 35,000 customers a week but Pama has 50,000 – one of every nine people on the island.
“His vision has been vindicated. Rather than focusing on higher margins on our goods, we prefer to focus on volume. We have three advantages: the economies of scale and purchasing power due to our size; cash which allows us to offer firm and regular credit terms to our suppliers, which we adhere to religiously; and Auchan, which we represent in Malta and which gives us a source of cost-effective products.
“On most products we believe we can match our cheapest competitors while still offering a wide range. People like to have variety. You would probably be surprised to learn that since Lidl opened in Qormi, Pavi’s sales surged as many customers go to both outlets. Lidl has around 1,000 very price competitive products and good offers – but most customers want to buy more than just that. So they also go to Pavi,” he explained.
He acknowledged that people like the ability to do a megashop once a week, especially since so many women are now working. But where does that leave small shops in village cores?
“The convenience of a one-stop mall with parking is obvious. Having said that, there is still a market for the convenience shop around the corner for your daily needs. We have to accept that their numbers might diminish and that the margins on their prices may be higher than other places’ – but the convenience justifies that premium. But something has to give and some of them will suffer.”
Mr Zarb, who spent almost 40 years with PwC, explained that food was one of the least susceptible sectors to a downturn in the economy.
“In hard times, people spend less and go for cheaper items. But we feel it less than others… It is much easier to cut down on eating out and on clothes, for example.
“Conversely, prosperity may be good for the economy as a whole but not for us… It means there is more disposable income so people eat out more!” he smiled.
The biggest challenge for Mr Gauci, now 63, is to ensure that the business survives him. His daughter Claire is in her 20s now, and although she is involved in the firm, it is still too early to know what her plans are for the future.
Mr Gauci wants to extricate himself gradually from the business, giving him more time to work on new ideas, but he wanted to ensure that PG Holdings would continue to flourish. Over the past year, he has been building up an executive team, with ex-BOV head Charles Borg as chief executive officer, and Mr Zarb as chairman, with four other non-executive directors on the board.
“But these changes can be reversed and dismantled in a moment unless there is continuity and determination. This is the challenge he now faces. How do you perpetuate this culture so that it can continue without him?” he pondered.