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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What impact could Walmart have on the South African retail industry?

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Two weeks on from Walmart’s announcement that they’d put in an offer for Massmart and local media is still abuzz with speculation, forecasts, and warnings. The latter being the dominant topic, and it’s coming from all angles.

Analysts considering the impact of Walmart’s entry into the local market have warned that local retailers may have to up their game to remain competitive in the new market. Walmart’s sheer size gives it an enormous advantage “[they] can source products cheaper and pass (savings) onto consumers.” President and CEO of the retailer, Doug McMillon, said one the company’s top priorities is saving people money and establishing themselves on the African continent was a great opportunity to deliver on that mission.

Retailers aren’t the only ones who could be in for a shock; local producers also fear the effects of the giant retailers presence in the local market. Whilst consumers can look forward to cheaper goods, local producers might face a slump in business as Walmart could potentially source cheaper products from abroad. Some producers have taken solace in the hope that the retailer will still have to source fresh produce locally.

There is also one warning headed in the opposite direction, “Walmart can’t bulldoze unions.” Cosatu have threatened to call on the government to supervise and monitor the planned purchase. With near on 2 million members in affiliated unions in major economic sectors, Cosatu have the power to make things very unpleasant for the American retailer.

Whether consumer, retailer, supplier, or producer, Walmart’s entry into the African market is going to affect us all, question is: how?

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