Massmart sticks to its Africa strategy
Expansion not the expected scramble, but growth is steady
● Almost seven years since the world’s biggest retailer bought a controlling stake in Massmart, the company is still taking a steady approach to growing its footprint outside SA’s borders.
When Walmart acquired the largely white-goods retailer after a protracted regulatory tussle, markets expected it to embark on a scramble for a bigger stake in subSaharan African markets.
Instead, Massmart has followed a slower path to expansion despite some criticism, especially as its domestic market has struggled.
Next year, the company is set to enter the Kenyan market with its Builders Warehouse, establishing a presence in its 13th country on the continent.
Venturing past the Limpopo River has proven a difficult task for many South African companies in recent years as economies have slowed since the end of the Chinese-inspired commodity super cycle. Further complicating matters have been stringent regulatory conditions.
Builders Warehouse CEO Llewellyn Walters said opening two to three stores a year had always been their strategy due to risks, including currency fluctuations and debt.
He said Massmart had often been criticised for not growing fast enough but the retail group’s strategy had been validated, since many retailers that went big and fast on the continent had lost large amounts of money and had to shut down some operations.
Walters pointed out that comparing Massmart’s multi-format stores with competing grocers was not entirely accurate.
“Our stores’ turnover is a lot higher than, say, a grocery store, so in theory in an alternative business you’d have to get four of them [grocery stores] with their respective turnovers grossed up to equal one Game or Builders Warehouse from a turnover point of view.
“So the fact that we have only one relative to their four doesn’t necessarily mean that we are lower in terms of sales,” said Walters.
Outside SA, Massmart operates more than 400 stores.
Karen Ferrini, Massbuild Africa and Builders Superstore director, said every country posed a different set of challenges, including expensive and protracted land-acquisition processes.
One of the markets where the retailer has found some traction has been Zambia.
In the capital city of Lusaka the competition is stiff, with a whole host of South African companies, from retailers to banks and restaurants, side by side in malls flanking roads filled with dust from construction sites, while cars sit bumper to bumper in traffic — a testament to the country’s burgeoning growth.
Zambia’s economy grew 4.1% last year and is expected to grow similarly this year.
Massmart is growing its presence in the capital, with two Builders Warehouse stores, in Makeni and Manda Hill, and one Game store, also in Makeni.
Walking into a Builders Warehouse store in Zambia is like stepping into any South African branch in terms of size and layout.
The store has a number of private labels, which, in addition to the Builders brand, include Fired Earth paint and Camp Master.
In 2011 when Walmart acquired 51% of Massmart for R16.5bn, the US giant set its sights on growing the retailer’s food business, saying that it was shaping Massmart’s food and consumables business to constitute over half of its sales.
However, the much-touted grocery part of the business has proven to be more of a challenge than anticipated, with competitors including Shoprite and Pick n Pay holding on tightly to their market shares.
The fact that we have one store to their four doesn’t mean we are lower in sales Llewellyn Walters
Builders Warehouse CEO
Walters said Game’s focus with regards to its fresh food offering had shifted to bulk packaging.
In Makeni, large sacks of vegetables and processed meats line the shelves but the biggest attraction is Kariba bream, a local fish. The store sells an average of 500kg of the fish a day.
In spite of being a short walk from Shoprite in the same mall, this particular Game’s fresh food section contributes 35% of its total sales.
Brian Leroni, Massmart Group corporate affairs executive, said Massmart’s strategy allowed it to build fewer stores but still attract large market shares, enabling it to keep operating costs as a percentage of sales low.
Leroni added that contrary to market perceptions, Massmart’s largest shareholder, Walmart, was supportive of its Africa expansion strategy.
The group has said it will add 49 new stores across its segments between now and December 2020, amounting to 10.7% of total new space, of which 29% will be concentrated in Nigeria, Kenya and Ghana.
Patrice Rassou, head of equities at Sanlam Investment, said Massmart’s expansion strategy was the right way to go and its smaller-store format, as well as its fresh food offering, would pay off by bringing more customers into its stores.
He added that its share price performance was a reflection of the tough past year for the industry, where the JSE general retailers’ index slipped 13%.
However, over the past five years, Massmart shares have dropped about 30%, while the JSE all share index has gained just under 17%.
Shoprite shares gained more than 7%, Spar shares more than 45% and Pick n Pay rose 54%.
A Builders Warehouse store in the Makeni area of Lusaka, Zambia, where Massmart faces stiff competition from other South African companies.