Politics and Pattison do not make a perfect mix
Massmart CEO | Young dealmaker embarks on a search for some new excitement, writes Chris Barron
MASSMART’S outgoing CEO, Grant Pattison, says he is getting out three years after the much-hyped merger with US-based global retail giant Walmart because he is bored.
“I am looking for some new excitement,” he says.
How about Eskom? They’re looking for someone. And Pattison, only 43, is after all a qualified electrical engineer with solid experience on the mines. Combined with his retail and management experience, he would be just the ticket for an organisation that is in crisis.
“Perhaps there is an obvious connection,” he says seriously. “The
To earn an incentive, I had to grow headline earnings at 3% above inflation. Now, I have to reach at least 90% of plan
thought has popped into my mind. The real stumbling block is that I would demand complete political independence, which would be naive.”
Eskom has not called him yet, but he is “open to anything”. Except more politics. After three years with Walmart, he has had enough of that. He doesn’t put it in so many words, of course, but ask what the biggest challenge for him has been, and it comes through loudly enough.
“There’s a whole bunch of politics involved in how one participates as a leader in that sort of environment,” he says.
He found it “difficult” to adjust and “struggled in the beginning”.
“You have to learn how to handle the bureaucracy that comes with a company as large as Walmart. There is less decision-making by individuals, more by committee.
“When I wanted something approved I would phone the person I thought was in charge, and interact with that person. Once he agreed, I would think okay, great, off we go. He would say, ‘No, no. Now I can take it to the committee’.
“That can be very frustrating. There is an extra time delay to getting something approved. It can make life quite complicated.”
Cultural differences are “enormous”, he says. Massmart used to measure its business in terms of the growth of headline earnings. Walmart works entirely on setting a plan and achieving it.
“That’s a huge cultural difference,” he says. It led to “a significant communications deficit building up. I’d get phoned by my boss to ask how are you doing? I’d say, ‘great, we’re up 15%’. He’d say, ‘but that’s 5% below plan’. I’d say, ‘but 15% is above our target’. So we’d miss each other.
“That took a lot of getting used to, and we’ve had to spend a lot of time and effort on it.”
Massmart also had to change its incentive system for senior executives.
“To earn an incentive, I had to grow headline earnings at 3% above inflation. Now, I have to reach at least 90% of plan.”
So did he qualify for an incentive bonus this year? “I did not.”
One wonders if the pain has been worth it. Judging by the share price, South African consumers are not exactly beating a path to Massmart stores. Where are the benefits they were led to expect?
“It is quite hard to differentiate between the benefits we and Wal- mart thought the merger would bring and the benefits commentators, investors and opponents of the deal thought it would bring,” he says.
Detractors “focused on the ability it would bring to Massmart to buy cheaper than local manufacturers would be able to respond to”.
In other words, Walmart’s buying power would bring down prices. A reasonable expectation, surely?
“Yes, but wrong. It was never our expectation.”
Surely the attraction of the merger was precisely that it would give Massmart access to Walmart’s buying power?
We were saying prices will improve because Walmart was going to increase our competitiveness, not because Walmart was suddenly going to lower the cost price. We made that point over and over again
“That was never a discussion we had. It never appeared in anyone’s numbers.”
He says it was made very clear in the Competition Tribunal hearings that preceded the merger that there would be “little if any buying power effect”.
So we mischievously misinterpreted all the hype, then?
“Some people mischievously used that rather emotional argument either for or against us.”
The government, driven by union pressure, took that approach to argue that the merger would disrupt local manufacturing and put local suppliers and competitors out of business.
So, contrary to popular belief, Walmart’s competitive advantage is not the price it is able to extract from suppliers?
“No. Its competitive advantage is that because of its technology and investment in supply chains and cost management and extraction of efficiencies, the cost of moving those goods from the factory to its shelves is lower than [that of] its competitors,” he says.
The bigger a supply chain, the greater the discounts the company, in this case Walmart, can leverage. But this has not benefited Massmart, he says.
“Walmart has no presence in Africa other than Massmart, so there is no leverage that comes from having a big supply chain. It has no incremental volumes to add to Massmart by reason of its [53%] ownership.”
That Massmart is improving its supply chain and lowering its transport cost is not due to Walmart’s size, he says. So why did Massmart need them? Because of access to Walmart’s intellectual property. “They are helping us to be cleverer.
“Massmart has got as good as it would have without Walmart. But once we were able to look under the bonnet and study the Walmart engine, we realised we thought we were globally competitive but actually we were about 10 years behind.
“We have become better at all sorts of things because we’ve been privy to Walmart’s technology.”
Certainly, its food retailing business is on the map now, but the Walmart merger has hardly shaken up the retail space the way consumers were led to believe it would. All we heard was how prices were going to plummet because of Walmart’s size and the buying power this would put at Massmart’s disposal.
“This is not what we were saying. We were saying the opposite. We were saying prices will improve because Walmart was going to increase our competitiveness, not because Walmart was suddenly going to lower the cost price. We made that point over and over again.”
All consumers care about is that their prices have not come down as much as was expected.
“Our prices have not come down as was erroneously expected,” he says.
“Are we dropping prices so that consumers walk in and say, ‘oh my God, look at that’? No.”
But they have come down enough to rattle Shoprite boss Whitey Basson’s cage, he says.
“Shoprite constantly refers to what Massmart is doing in the food retail space. They see us as a threat. They’ve confirmed that we’re putting pressure on prices. They make these sarcastic comments about how we’re putting huge pressure on margins.” Is this reflected in the figures? “We were a R2-billion to R3-billion business [out of R350-billion] in food retail, now we’re a R12-billion to R13billion business in food retail.”
He concedes that shareholders have not benefited yet. Is this why he’s going? “The opposite is true. The board tried to convince me to stay.” Comment on this: write to letters@businesstimes.co.za or SMS us at 33971
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