Walmart: into Africa

Date : 15 September 2011
Walmart: into Africa

South Africa. One-eighth the size of the United States, twice as large as France and over three times the size of Germany, it covers over one million square kilometres.

Eleven different languages are spoken among the Rainbow Nation's 50 million inhabitants. The country has a rich and often turbulent history. Since Nelson Mandela walked out of prison on that momentous day in 1990, the pace of change has continued far across the African continent.

In retail, a new player is starting to make itself heard in South Africa. Since the the Competition Tribunal gave the green light to Walmart's acquisition of South African group Massmart Holdings in 2011 the US giant owns 51% of Massmart.

Why Massmart?

South Africa image

Massmart's four divisions and formats ranging from warehouse club Makro to home improvement retailer Builders Warehouse made it attractive.  Walmart has gained a partner with particular expertise in general merchandise, and a strong food and consumables business. Massmart's regional knowledge and capability is a great advantage and Walmart will complement these skills with its own global scale and expertise.

There were also synergies between Walmart and Massmart's formats. For example, Massmart's 'game' stores are very similar to the original discount stores in the US, retailing predominantly general merchandise and non-perishable groceries. Walmart brought its invaluable expertise in developing formats to meet the needs of emerging consumers, as demonstrated in Latin America.

The opportunity in South Africa is huge

South Africa's grocery retail market is set to be worth USD47bn in 2012, up from USD43bn in 2011 (Source: IGD Retail Analysis Datacentre).

The country's retail industry is thriving, despite big differences between consumer groups in terms of buying power and high unemployment. Its major grocery retailers - Shoprite and Pick n Pay - are domestically-owned and, until now, SPAR International is the only foreign operator to have made significant progress into the market. The informal retail sector is hugely important. Consisting of independent traders, flea markets, hawkers, spaza outlets (selling household goods from residential premises) and shebeen (liquor stores) , it complements the formal sector which is made up of major retail and wholesale groups.

Walmart's expertise is likely to accelerate Massmart's growth. The combined entity's new store openings will create jobs too. 

And the benefits will not just be confined to the merging retailers. Walmart has had a sourcing operation in South Africa for five years (the office in Stellenbosch purchases around 25% of the South African citrus produce shipped to the US) and this transaction opens up the broader Walmart network for domestic suppliers. In addition, Walmart intends to deliver real improvements to the supply chain, sharing its logistics expertise, inventory management and forecasting models.

It's not just about South Africa

Walmart will be looking to the potential of other markets now the deal is done

This deal has also given Walmart a means of entering the other African countries in which Massmart operates, as far away as Ghana and Nigeria or  neighbouring Botswana. Walmart will face competition in many of these countries from other South African retailers, with Shoprite currently boasting the most extensive presence across the continent.

Plenty of long-term potential

Sub-Saharan Africa is expected to grow faster than north Africa and the continent as a whole is playing a greater role in the world economy, while the share of trade conducted with emerging partners has grown from around 23% to 39% in the last ten years (Source: African Economic Outlook 2011).

Walmart’s entry sends a signal to other global retailers about the potential for long-term growth in the region, which could drive renewed interest and investment. There has been plenty of speculation over the next acquisition target or new entrant and it will be a fascinating market to watch.

Retail

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