Massmart sells sinking food unit
• Divestment from fresh food retail is part of a turnaround plan led by CEO Mitchell Slape
Massmart, the owner of Builders and Game, has sold its loss-making Rhino and Cambridge food businesses to Shoprite Checkers for R1.36bn, allowing it to divest from fresh food retail and focus on its better-performing businesses as part of a plan to return to profitability.
Massmart, owner of Builders and Game, has sold its lossmaking Rhino and Cambridge food businesses to Shoprite Checkers for R1.36bn, allowing it to divest from fresh food retail and focus on its better-performing businesses as part of a plan to return to profitability.
The low-income supermarket division recorded a R363.5m loss in 2020 and a R310.2m loss in 2019.
However, Pieter Engelbrecht, CEO of SA’s biggest grocer, Shoprite, said: “We believe we can profitably run these operations as a result of our operational expertise.”
The group was experienced in discount retail with its Shoprite and Usave brands, he said, and the purchase was strategic in giving them immediate access to opportunities the group had only planned to explore in the medium term.
Both Pick n Pay, which runs Boxer discount stores, and Shoprite had expressed public interest in buying the Massmart low-income chains, a growing retail space in SA as consumers hunt for discounts.
Cambridge has been losing money with total sales for the year to June 27 down 9.8%, or R1.4bn lower, when compared with the same period in 2019, a better comparison than 2020, which had a hard lockdown.
The sale forms part of a turnaround plan led by former Walmart executive and CEO Mitchell Slape to bring the ailing group back to profitability after two annual losses of more than R1bn and a poor set of results for the 2021 half-year to June 27. He has shut down Dion Wired, merged four company units into two, outsourced software support to a Walmart centre in India, and is investing in e-commerce.
The transaction will be subject to approval from the competition authorities, who will have to ensure that the merger does not raise concerns about a discount monopoly retailer. If it is given the nod, the deal will save jobs as employees will be transferred to Shoprite with the same or similar job contracts.
The sale will allow Shoprite to expand its liquor footprint by 43 stores from its existing 541 bottle stores, without applying for new liquor licences.
It will acquire 56 Cambridge Food and Rhino stores and Massfresh — which comprises The Fruitspot and a meat processing facility — as well as 12 Cash & Carry stores.
It is expected the transaction will be concluded in the first few months of 2022.
The sale will allow Massmart to reduce spending time on fresh food where it has not succeeded and focus on its more stable Builders and Makro brands, as well as fixing the Game stores that continue to lose millions.
Massmart said the money would be used towards debt and investing in e-commerce and in more popular merchandise areas such as DIY and wholesale liquor and general merchandise. Massmart has a R4bn rolling debt loan from its parent, Walmart, the world’s largest grocer, and will look to pay down a portion.
Slape said: “The sale marks another step in the group’s portfolio optimisation process and will free up management time to enable increased focus on leveraging Massmart’s core merchandise and market strengths.”