Mass­mart sticks to its Africa strat­egy

Ex­pan­sion not the ex­pected scram­ble, but growth is steady

Sunday Times - - Business Retail - By PENE­LOPE MASHEGO mashe­gop@busi­nesslive.co.za

● 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%.

Pic­ture: Supplied

A Builders Ware­house store in the Mak­eni area of Lusaka, Zam­bia, where Mass­mart faces stiff com­pe­ti­tion from other South African com­pa­nies.

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