Changes in South African Retail

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The South African retail environment is set to change over the next 5 years and that change is going to be driven largely by Massmart and their competitor’s reaction to their post Walmart strategy. Already every retailer has been asked the question, “How is the Walmart in SA going to impact on your business”. That is a very difficult question to answer when you are not sure how Massmart will change.

Walmex (Walmart Mexico) has been a successful model in an emerging market for Walmart and the management team at Massmart will be encouraged to follow a similar strategy by their American partner. Walmex has expanded successfully into Central America from a dominant position in the Mexican market and one can reasonably assume that the South African team will endeavour to follow the same path.

The key difference in South Africa is that Massmart don’t dominate the local food market and will need to grow a significant food business in a market dominated by a few major players. This will present a challenge that will not be easy to overcome. Already Massmart have pursued each of the independents successfully and the purchase of Rhino will all but close the book on growth by acquisition. Perhaps the competition commission would have a different view on Massmart purchasing Fruit and Veg City than it did to the proposed Pick n Pay buy out. That may be farfetched but it would certainly throw a cat amongst the pigeons.

I don’t believe that suppliers are going to be adversely affected by Walmart’s purchase of Massmart and I certainly don’t believe that factories will be closing left, right and centre. Prospects for suppliers may even improve through Massmarts projected growth in food retail. In all markets a retailers priority is to source locally wherever possible and it is unlikely that that will change. Manufacturers require efficient routes to market to be successful, a growing Massmart with multiple store formats would provide that as well as access to markets that have previously been difficult to supply directly.

To get an idea of how Massmart may look in a couple of years have a look at the Walmex site. It looks remarkably similar to what Shoprite have done in Africa, without an American friend and hats off to them for that!


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