The State of Logistics in South Africa

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The South African logistics sector has long been plagued by consistently high costs and the 7th State of Logistics Survey shows no signs of the trend abating. The survey released on Tuesday 8 March by the Council for Scientific and Industrial Research (CSIR), IMPERIAL Logistics and Stellenbosch University found that between 2008 and 2009 total cost of logistics decreased by just 1.2%, from 14.7% to 13.5% of Gross Domestic Product (GDP).

These figures are considerably lower than forecasts estimated and indicate an under performing logistics sector. Considering the declining nature of the price of diesel and inflation, the two leading cost drivers, a drop closer to 12.5% could’ve been expected.

There was also a drop in total tonnage as well as ton/km of 4% and 3.7% respectively and less freight was transported in 2009.

On the environmental side, 23 million tons of greenhouse gasses were emitted due to land freight transport activities, 20.3 million tons of which was due to road freight.

The survey found that approximately one third of transport activity in South Africa is outsourced and also stated that growth opportunities were to be found in growth in outsourcing and not among available outsourced freight.
A call has been made for further collaboration between the private and public sectors to enhance the economic infrastructure and promote economic growth and job creation. In addition, it is noted that a move away from mediocrity and strive for world-class standards to ensure the envisaged 7% economic growth annually, for the next 20 years.

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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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How valuable is the convenience format to South Africa’s major food retailers?

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There has been a great deal of hype around the Branded forecourt store ever since the first Woolworths / Engen store was launched in 2000, but in the 10 years since then the partnership has only managed to find 43 suitable sites and still do not distribute nationally.

I am not implying that there is not a space for convenience retailing in our market, it has been proven that the format works very well. I am simply warning against the over estimation of the size of the target market and the availability of suitable sites for stores.

Convenience retailing is a very specialist form of retailing and the costs associated with selling from a small store are often underestimated, especially if there is an aggressive store roll out plan. It is also difficult to find suitable sites and even more difficult to find operators who are able to make the significant investment and have the necessary retail skills to manage what is an intricate, hands-on business.

Pick n Pay and Fruit and Veg City have aggressive plans for the convenience format. They are both very good retailers and I have no doubt that they will execute the projects to their full potential. It’s the potential size of the market that remains to be seen. I don’t believe that retailers should be looking for their growth to come from the convenience format but perhaps a better question to ask is, can they afford not to participate in the sector.

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Pick n Pay implement a reshuffle to initiate changes

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The 3 core principles behind Pick n Pay’s restructuring campaign, Consumer Sovereignty, Doing good is good business and Business Efficiency, are simple and straightforward and it follows that they therefore should be easier to affect and maintain. At the heart of the restructuring, as always with Pick n Pay, is the consumer and how their experience and interaction with the brand can be improved.

One the biggest changes is right at the top as the current Exco and Retail Management Board and Group Enterprises Board make way for a Group Executive consisting of accountabilities in Marketing and Sustainability, Buying, Operations, Supply Chain/IS, Franchise, Group Enterprises, Finance, HR, Transformation and Customer.

These are only the latest in a series of changes which began implementation in 2006. CEO Nick Badminton cites the most notable change as the fact that they are now a “more focused operation, having converted the Score stores to Pick n Pay and announced our intention to sell our Franklins operation in Australia.”
In addition, they have made substantial investments towards efficiency and sustainability. In terms of the latter, the retailer announced its intention to commit to zero waste to landfill by 2015 and dramatically reduce carbon emissions.

With regards to the sale of their Franklin’s operation, unfortunately the Australian Competition and Consumer Commission has chosen to oppose the proposed sale, claiming that if successful the deal would negatively affect competition in the retail sector. Furthermore they also cited an expressed interest in acquiring the Franklins chain by “unnamed parties.” Pick n Pay CEO, Mr Gareth Ackerman was surprised and disappointed by the decision and insisted that the sale of Franklin’s to Metcash would be in the best interests of Australian consumers.

Ackerman commended Badminton for his efforts and added that, “his restructuring is an important part of the total strategy of Pick n Pay. It positions us very well for the future.”

With all the changes in the pipeline it looks like Pick n Pay have a bright future however, some the sparkle may be lost if Franklin’s continues to weigh down the domestic giant. The sale would go a long way towards funding the extensive restructuring and without it said plans may have to be put on hold.

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