There was a time when if you wanted a pair of Levi’s 501s you’d have to go down to Grey Street on a Friday after school and drive a hard bargain with the sharp-eyed sales assistant at Kalidas Extension and still pay twice what you would for the equivalent pair of Lees. Now you can get those still sought-after trousers at Woolies, in an increasing number of locations. This is called progress. Where were we? Ah, yes. Massmart has joined up with credit solutions provider and BNP Paribas subsidiary RCS to offer further benefits to punters using store-branded credit cards to shop either online or in store at Builders, Makro and Game. And finally, in news of the monstrous, Pick n Pay is now offering something called Pink Tiger lemons, which are exactly what they sound like – striped, pink fleshed, sweeter and with exciting floral notes that will make them the darlings of dessert-makers and pourers of gin everywhere. Sourced from Spain, they will be slightly more expensive than your run of the mill, sour, yellow variety.

Comment: Truly, we live in a time of wonders, if we’re prepared to stretch our supply chain a touch.

Doing the quiet work of futureproofing Massmart during a not untroubled ambit in the Group’s history is its supply chain team, which in recent years has made great strides in consolidating the logistics, warehousing and stock control systems across the business. One of the steps it has taken has been to consolidate drop-off for suppliers at three mega-DCs, at Brackengate in the Western Cape, Northfields in KwaZulu-Natal, and Riversands in Gauteng. The completion of these facilities was fast-tracked to help the Group get its supply chain up and running rapidly after the devastation of July’s civil unrest, creating a powerful platform for future supply chain efficiency and resilience. On the stock management side, the business is busy launching Trackmatic, a supplier platform that provides a data-led approach to improving stock forecast accuracy and will eventually allow Massmart to proactively manage supply constraints in the face of planned or known shortages.

Comment: Impressive work from a business which seems to have a lot of gas in the tank and an increasingly clear sense of where it wants to go.

A very tough year for Massmart, as evinced by its latest set of results: sales -1.9% to R84.9bn for the year through December (including discontinued operations of Cambridge Food, Rhino and Massfresh), with trading profit an appalling -83.3% down to R195.4m, and a net loss of R2.2bn, down a further -25.7% from last year. The business was hit by an impairment expense of almost R1.1bn, over half of which related to an unspecified issue with its S/4 Hana ERP system software. Massmart was also a notable victim of the July unrest, with 43 stores and two DCs targeted, and nine stores still closed. What, then, is to be done? Turnaround king (and CEO) Mitch Slape still seems sanguine: “We have intensified the pivot toward growth in our core general merchandise, home improvement and wholesale food and liquor offerings,” he says. In effect, the business has decided to put it all on black, with massive expansions in the pipeline for its two most successful trading brands, Makro and Builders, which will grow footprint in the next few years, with Builders in particular increasing its footprint by as much as 50%.

Comment: It’s going to be a long hard road home for Massmart, but there is a credible plan. Hopefully the next years will provide a suitable ecosystem for its fulfilment.

What should Massmart do re Game? There really are only three options, if you listen to the pundits. Turn it around, sell it, or shut it down. And with sales -8.1% for the year through December at the discount retailer, having shrunk for the past four or five years, you can be sure that Massmart are taking a look at all three. The issue with turning the business around is that this is likely to be a costly undertaking, at a time when Massmart is carrying heavy debt, including a R4bn loan from parent company Walmart. Selling is also complicated right now – Game’s woes have been heavily reported, and the business is unlikely to go for a premium. And cutting and running also brings its challenges, in the form of leases to exit and cross-sureties within the Group. Having said all this – Game has just opened two of its strongest-performing stores damaged in the July uprising, in Soweto and Vosloorus, with three more to come in KZN next month.

Comment: And honestly – an -8% dip is hardly apocalyptic. Maybe magenta’s still good for another couple of seasons.

So a Massmart update, then, for the year through December, telling the story of a year in which the Group’s solid turnaround strategy was largely frustrated by civil unrest in the middle of the year and ongoing fallout from the COVID-19 pandemic. Group sales fell -1.9% overall, although like-store sales were up by a razor-thin +1.7% GM plummeted by -9.7%, hit by the restriction on the global supply chain at the end of last year. Tellingly, sales at discontinued operations – the Cambridge and Rhino stores as well as Massfresh assets being bought by Shoprite – fell -10.6%. But the story of Makro is one from which the business might take heart: at 34% of Group sales, Makro grew turnover +6.6%, with liquor up +39.8% and even GM growing by +7.2%. Back to the downside: sales were down -8.1% at Game and -6.3% at the Wholesale Cash & Carry business. Builders grew +7.1%.

Comment: Essentially, a tale of two businesses – Builders and Makro vs the rest. It is to be hoped that the excellence that characterises the former may be brought through to the rest of the business.

A tough start to the year for Massmart, with the announcement that its headline loss per share will be at least 40% heavier than the loss it reported in 2020. This as a result of the civil unrest and looting that so brutally bisected what was already going to be a difficult year for the business. The business lost around R2.5bn in inventory and damaged or destroyed assets, with an accounting loss of R650m after insurance pay-outs. Sales for the year grew just +0.9%, to R69.7bn, dragged thither by the continued impact of the prohibition on a business which has been known to make a bob or two on the sale of booze. What to do? For starters, parent company Walmart will extend the term of a portion of the R4bn loan to the business, replacing R2bn of the loan by subscribing for a perpetual fixed rate unsecured note, if you’re interested in that sort of detail. And Massmart will be selling 15 out if its 114 Game stores to raise a bit of extra and stop the bleeding.

Comment: It is to be hoped that 2022 will be the year that Massmart begins its turnaround. The alternative is not something to contemplate right now.

A trading update from Massmart, in which the Men in Black report that total sales for the 39 weeks through September were regrettably flat, growing just +0.2% to R60.6bn, with like-store sales up +2.9% over the same period. Sales here in the Beloved Country showed more promise, with a +1.2% increase to R55.4bn, with like-store sales up +4.4%. This after the civil unrest of July, and 110 days of liquor sales lost to COVID. The business remains sanguine, however: its omni-channel strategy is building steam nicely with the launch of the Builder and Makro mini-apps and the acquisitions of WumDrop and OneCart. In addition, Black Friday looms, and implementation of Massmart’s turnaround plan continues. “Management is confident that despite the recent headwinds, the strategic growth initiatives announced are bearing fruit, and we fully expect this to gain momentum and continue in the medium to long term,” their words.

Comment: Massmart could use some better news round about now. As, no doubt, could their shareholders.

Bit of a shakeup in the upper echelons of wholesale, where Metcash CEO Jeff Adams is stepping down and will be replaced by Massmart Wholesale alum Doug Jones. Adams will return to the US having presided over a period of significant growth for the wholesale and retail giant. In other Massmart news, Makro and Builders have launched a series of mini-apps on the VodaPay super app, that will enable punters to shop online from the two stores’ catalogues using their mobile devices. Features will include almost 450 app-exclusive Makro and Builders deals, including surprise daily and R1 deals. And finally, the Men in Black have let it be known that they’ve reached an agreement for the purchase of 87.5% of the issued shares in FMCG marketplace and logistics platform, OneCart, which partners with leading retailers in South Africa to enable fast, flexible and efficient online sales and home delivery.

Comment: Massmart is making bold moves to consolidate its business and grow its online offering.

More on those Massmart interims, to which we alluded last week, and of which you can find a handy summary here. Group sales for the 26 weeks through June rose +4.4% to R41.3bn, with trading profit (including discontinued operations) up a deceptively barnstorming +266.6% to R444.2m. This was driven, they say, by growth in profit before interest and tax (PBIT) increases at Builders of +184% and at Massmart Wholesale of +70%, as well as the positive impact of turnaround interventions, including improved gross profit margins and delivery. Last week we reported on the pending sale of its underperforming food assets to Shoprite; another area of interest is the turnaround strategy at Game. The business piloted its first ‘Game Reimagined’ store in the Mall of Africa in September last year, started rollout of the programme in February this year and has refurbed 64 stores since, reporting double-digit growth in basket size and an average +13% increase in comparative sales growth at these locations. Massmart has also announced that it will be closing all 14 of its Game stores in West and East Africa.

Comment: Massmart’s leaner model seems geared for success in these more straitened times. Suppliers would do well to acquaint themselves with the constraints and opportunities this brings.

So as we were saying, in significant news for all parties, Shoprite has offered to purchase a number of Massmart’s non-core food assets for the tidy if not princely sum of R1.36bn. The businesses in question – as you will probably recall – are Cambridge Food, Rhino, Massfresh and 12 Cash & Carry stores. The sale is of course subject to the nod of the competition authorities, which should conclude their deliberations by March 2022. “The sale marks another step in the Group’s portfolio optimisation process and will, amongst other benefits, free up management time to enable increased focus on leveraging Massmart’s core merchandise and market strengths,” says CEO Mitch Slape. Massmart will use the cash to settle some bills, to advance its e-commerce projects, and to invest in some focus areas for the business, such as DIY, liquor, and wholesale food.

Comment: A leaner, more focused Massmart is good for its investors both here and abroad, good for suppliers who can target their offering more effectively, and good for South Africa’s consumers. Look out for more detail in the Group’s half year results next week.

A trading update of characteristic honesty from Massmart, which is executing its turnaround strategy in conditions that, to put it mildly, just never seem to get any easier. Its update for the half year through June indicates losses of between R745m and R836m, an improvement on the R907.7m it logged this time last year, but only just, after taking a half-billion rand write-down for Game’s losses. Group sales are up somewhere in the order of +4.4% to R41.3bn. Not accounted for are losses at Cambridge and Rhino, which are still on the market if you’re interested. Massmart has also let it be known that it doesn’t believe its insurance will fully cover the losses from the recent outbreak of looting and arson and expects further write-downs from this. The turnaround strategy at Game includes investment in new software, better customer service and more efficient e-commerce; indications are that these have not yet taken hold. COVID has also taken its toll on foot traffic. On the upside, Makro grew sales by +13.5% to R13.7bn, and Builders was up +24% to R7.2bn.

Comment: No one goes broke selling gumboots and bags of cement to South Africa’s weekend warriors, it seems.

A couple of weeks ago we mentioned in an offhand way that Massmart’s Game was closing its operations in “West and East Africa”, two vast and not even necessarily contiguous regions. Let’s get a little more specific shall we: Massmart is divesting itself of five Games in Nigeria, four in Ghana, two in Kenya and one each in Tanzania and Uganda. The business will be represented in Kenya by a single Builders store in Nairobi. Interestingly, Shoprite has also said it will be divesting more of its East African stores – namely its five branches in Uganda and 10 in Madagascar. This leaves it without a single store in the region, having sold its Tanzanian assets to Nakumatt in 2014, and exited the Kenyan market in early 2021. Both businesses have given currency devaluations, high inflation and lower commodity prices as the reasons for their retreat from the regions in question.

Comment: This, to us, looks like a lose-lose scenario. There is no doubt that these markets would benefit from the vibrance and value of modern retail in some suitable form or another. And our retailers, constrained and consolidated at home, need somewhere to grow.

Further evidence, if more were needed, that Walmart remains committed to its investment in Massmart came this week with the news that the Big Feller is springing a not insubstantial $11.34m over the next two years for payments to Genpact, a financial service provider to Massmart. Genpact is a multinational professional services firm that does back-end office work for many Fortune 500 companies, and was hired by the Men in Black in January to do tax stuff and account payments. Walmart’s generosity will take some of the cashflow burden off Massmart for the next couple of years as its strategy of consolidation and cost-cutting kicks in and it returns once more to profitability. The retention of Genpact seems to follow an outsourcing trend followed since the arrival of Mitch Slape – Massmart’s IT software support is now handled by a Walmart-owned call centre in India.

Comment: Massmart has not been the bargain Walmart had hoped. But nobody can say they aren’t giving it a proper go.

Makro recorded a +40% increase in online sales during the year we had no choice but to call 2020. Game was up +77% over the same period, while Builders grew a mind-blowing +111%, begging the previously unthinkable question: is the bakkie as we know it becoming obsolete? Now in the ‘21, Makro has decided to invest in becoming a major force in online retail locally, and a potential rival to Takealot. What’s it got going for it? First, the infrastructure: Makro’s 23 stores are ready, willing and able to be full service DCs for online ordering, and a pickup service is successfully running at four of them. Second, the people, like Sylvester John, ex-vice president for last mile delivery in Walmart’s North American division, who now leads Massmart’s e-commerce team. Thirdly, delivery: its partnership with Wumdrop gives the business the benefit of a crowdsourcing solution and the ability to grow direct deliveries to customers, improving lead times and efficiencies – their words not ours. So what’s left? The front end. In this regard, Massmart is revamping its website to offer Walmart-like ease and efficiency to the South African punter. It’s also adopting a mobile-first strategy, underpinned by its status as an anchor tenant on Vodacom’s forthcoming super app.

Comment: Exciting stuff. If there’s an existing South African retailer with the range and the reach to take on Takealot, Makro is probably it.

A trading update from Massmart, who always seems to spring these things on us at odd intervals. Sales up +8% to R30.5bn for the 19 weeks through 9 May, with sales in South African stores increasing an even healthier +10.1% to R27.9bn, and sales outside of South Africa declining by around the same. The growth in South Africa came despite an estimated YoY decline in liquor sales of R770m. Makro grew sales +16.6% despite pressure on the food business as a result of a struggling hospitality and service sector, while sales in the embattled cash and carry business declined marginally; sales at Cambridge were down -8.4%. Builders, though: sales up a barnstorming +39.4% to R4.9bn (remember, though, that Builders lost most of April last year, but still…). And all of this against last year’s results, where Group sales were down -7.7% for the year through December.

Comment: All of this points to a Massmart recovery, which seems set to accelerate as underperforming assets and inefficiencies are removed from the equation.

While not exactly the jewel in the Massmart crown – that would probably be Makro – Game is working gamely (Really? Ed.) to remain relevant and deliver innovation in a rapidly shifting retail landscape. To this end, it’s putting considerable resources into growing online sales, revamping its mobile app, beefing up its third-party delivery partner network, and helping punters easily find what they’re looking for online. 70% of shoppers access Game’s website via the app, which was not initially designed as an end-to-end shopping experience. Enter COVID, and with it an increase of +70% in online sales last year. How to meet demand? Omnichannel. “We want to create multiple platforms that will, for example, enable customers to engage and shop via the app, the WhatsApp engagement channel or via our call centres, and for all platforms to work seamlessly together,” explains Game e-commerce and digital VP Paris Philippou.

Comment: Massmart has seen some troubled times these few years past. But it remains one of Africa’s largest retailers, and seems to be tightening its offering to bring the punters what they want, when they want it.

As we reported a couple weeks back, Massmart will shortly be disposing of its Cambridge and Rhino retail operations, as standalone food is not core to the business. They’re also disposing of their Massfresh offering, and now, we are told, are taking a long hard look at the rest of Africa, where the business is “under review”. According to Business Day’s irascible Chris Gilmour, this is usually shorthand for “going to be sold off or closed down.” He points out that if this were the case, it would leave the business with 22 Makros, 69 cash and carries, 120 Builders’ and 149 Games – a slim base indeed off which to launch the next phase of growth if such is planned. Unless, of course, that growth is virtual: online sales grew +58.6% to deliver R1.1bn in gross merchandising value across the business in the year through December, and Massmart is investing heavily in its e-commerce platforms to improve its distribution and support.

Comment: Massmart has tasted greatness before, and with the necessary disciplines in place, should eat of its fruits again.

A slow news week, so what better time to dive into Massmart’s arcane wrangling with SARS over who exactly carries the can for loses on an employee share option scheme. Follow closely now, it’s going to get tax-ing. (Oh, come on. Ed.) Turns out that 20 years ago, Massmart set up a trust through which it would channel share transactions for key management who were offered call options on Massmart shares that vested over the course of years. When the time came to settle up, the trust could buy shares on the JSE, allowing the participants to cash out their shares, something 90% of them apparently chose to do. But the devil, you see, was in the details: Massmart would ‘loan’ cash to the trust that was never intended to be repaid, and (OK we’re lost) when Massmart exercised its right to have the trust use this cash to buy the shares, a capital gains loss would somehow result, according to Massmart. To which SARS has responded, “nice try sunshine”, leaving Massmart in the can for taxes on almost a billion South African rands it had hoped to claim as a write-off.

Comment: Or something. Moral of the story is, don’t.

So the final Massmart numbers are in for the year through December 2020, and things went pretty much as advertised in the recent trading update: total sales down -7.7% to R86.5bn, with a net loss of R1.8bn, with write-downs of R798.7m, mainly related to its Cambridge and Fruitspot businesses, and foreign exchange losses of R381.1m. On the upside, the business managed to reduce operating expenses, and delivered a trading profit of R1.17bn, up +5.5% from last year. What’s the plan? “We are also now moving beyond our turnaround imperative to align the Group portfolio to our strategic objective to prioritise investment in core and high-returning trading assets,” said the business, in a statement which translates to “close underperforming stores”. Accordingly, it is looking into the disposal of its Cambridge Food, Rhino and Massfresh assets.

Comment: As Massmart closes underperforming stores and business units, it opens up further space for the resurgent independents. Ongoing support being brought in from Walmart in the form of resources (including a R4bn loan facility), programmes and expertise will hopefully help defend its market share.

Even as Massmart beats a strategic withdrawal from some of its retail assets, including Cambridge Food, it is staking out some other real estate critical to its growth (cue dystopian dubstep, dramatic pause) … Cyberspace. Massmart’s Makro and Builder’s brands will be ‘anchor tenants’, if you will, on Vodacom’s new “super app”, to be launched mid-year, on which punters will be able to shop online, stream music, pay bills, send cash to friends, buy insurance and even borrow money via their mobile phone. Game will be added later. This will give Massmart a captive market of 44 million Vodacom subscribers – a lot more punters than the business currently reaches. “We believe that we would get a lot more younger, tech-savvy customers to come to us,” avers Massmart COO Richard Inskip. Massmart recently launched products with OneCart and UberEats to expand its reach and plans to introduce its own shopping apps.

Comment: Promising stuff for a business which has endured some hard years.

Massmart intends to close another 14 stores under the Browns & Weirs and Jumbo brands in its Masscash division, after the sale of eight last year to Devland (with another three possibly to come), all as part of its turnaround strategy. At the end of the 2019 financial year, the business had 130 Masscash stores, which contributed around a third of the Group’s R93.7bn in sales but generated a trading loss of R385.4m. Massmart also joined the stampede of trading updates last week: Group sales were -7.7% lower for the year through 27 December, at R86.5bn, although it anticipates that trading profit will be 3 to 8% up on last year. Net loss, though, different story: Massmart is anticipating it to widen by as much as 36% from R1.3bn in 2019, because of write-downs of R798m, including to its Cambridge Food and Fruitspot businesses. The turnaround plan remains in full swing, however, with a three-year cost saving target of R1.9bn.

Comment: Heckuva time for a turnaround strategy. This will be feather in Mitch Slape’s cap if he pulls it off.

Massmart have been keeping something of a low profile of late but have popped their heads over the parapet to deliver a breathless trading update for the 52 weeks through to 27 December 2020. Total sales were down -7.7% to R86.5bn YoY, with like store sales down -7.5%. South African sales were down -7.9%, with sales in the rest of Africa slightly better at -5.4%. Sales lost due to COVID, say the Men in Black, were estimated at around R5.7bn. Fourth quarter sales were more promising, coming in at -4.1% under the same period last year. Liquor sales have been something of a wash under the draconian restrictions on that category. For readers of a financial bent, Massmart has announced that it will be entering a management services agreement with Genpact covering financial transaction processing activities. Genpact are a strategic partner of Walmart.

Comment: It will be interesting to see, when the financials come out, what profits Massmart has managed to extract from these numbers.

Big new Massmart DC at Brackenfell in the Western Cape underway. Let’s have a peek under the old bonnet, shall we? Over to you, Tyrone Kleinjan, development manager for the project: “The Massmart DC boasts a beautiful, high, curved and seamless roof – which measures over 60,000 square metres – making it one of the largest single roof surfaces in Cape Town,” he extols. “The most important element in warehouse design is the shape of the roof, and the Massmart DC has a continuous roof sheet system to minimise any potential weak points where water can enter the building.” Roof aside, it’s all green: inverter-type aircon for -25% less power, rainwater harvesting, LED lighting and motion sensors to keep them off when they’re not needed, water-wise plants, you name it. The facility covers an impressive 53,000 squares and should be up and running by September next.

Comment: Bold. Massmart have not been without their troubles the past couple years, but clearly, they are here to stay.

We generally devote a line here or a line there to news of executive appointments among our retailers, unless the appointment points to a larger shift in the strategy or fortunes of the business concerned. And thus it is now: with the appointment of Theodore Sylvester John, recently Walmart’s North America vice-president for last-mile delivery, to lead the e-commerce business. “We have placed high priority on investing in, and improving, our e-commerce competence,” says fellow US transplant and CEO Mitch Slape. “To achieve this, we are extremely lucky to be able to draw on Walmart’s extensive knowledge and experience (and) Sylvester’s assignment is further evidence of their support.” Massmart has indeed gone all-in on the omni-channel and e-commerce business, having got a head start on click-and-collect and beefing up last-mile with the acquisition of Wumdrop in 2017.

Comment: Walmart’s involvement seems to go above and beyond the mere protection of an investment. If you ask us, it’s playing a long game on the African continent, with Massmart as the bridgehead.

Game and Makro will be running their Black Friday deals throughout November to capitalise on that global festival of affordable gizmos while maintaining COVID-19 protocols. “Black Friday traditionally sees high concentrations of shoppers in retail stores across the country, which can create a challenging shopping environment,” explains Massmart Corporate Affairs Executive Brian Leroni. Deals will be staggered throughout the month, with new discounts announced each week, and running only for that week, maintaining the heady sense of urgency for which Black Friday is adored. Sneak previews of the deals – including big-ticket items such as large appliances, electronics, home living items and of course televisions – will be provided on Massmart’s social media.

Comment: We’re a little on the fence about the long-term value of Black Friday to South African households. But certainly, Massmart are taking an innovative and strategic approach to the retail event this year.

Mitch Slape is putting his money where his mouth is to the tune of 8 million something South African rand, or 300,000 Massmart shares, which he’s purchased either as a truly epic PR stunt or because he believes his turnaround of the business is solidly on track, probably the latter we surmise. He’s made some pretty decisive moves since taking the reins: simplified the business into two divisions, taken fresh produce off the menu at Game, outsourced IT support to Walmart’s Indian operation, paid out R46m in severance packages to reduce staff costs, and shut down DionWired, just for starters. While the business lost R1.2bn this financial, profit margin, a good measure of efficiency, was up just shy of a percent for the period. He’ll also apparently be looking at the profitability of operations in Africa (read: more cuts). It seems that the punters are willing to back the horse that Mitch rode in on too: while the share has lost -44% in this horrible year, it was up almost 4% by close last week.

Comment: Go big or go home. Fortunately, it seems that Mitch has decided to stick around.

Is Walmart really super-committed to its investment in Massmart? Mitch Slape is tired of you asking. “I really look forward to the day when that’s not a question anymore,” he says, pointing to the R4bn Daddy Walbucks lent Massmart in June should it need the extra cash to get over the worst of COVID. And to the talent he’s bringing in to help things along – talent which now includes Walmart veteran Martin Halle, out of Argentina, as VP in charge of Massmart’s supply chain, an area in which he has a particular talent. All of this emerged at the interims presentation last week, at which it was also announced that sales were down -9.7% for the half-year through June, despite a double-digit growth in online, and that the business had turned in a R1.2bn loss, substantially due to closing costs for DionWired. For a closer look at the numbers, click here.

Comment: Rampant at home in the US, Walmart has energy and cash to burn for the Massmart turnaround. We do hope it works.

Sad news this week from Game, which is in negotiations with organised labour for the cutting of as many as 1,800 staff from the payroll, a measure aimed at improving efficiencies as part of its ongoing efforts to restructure the underperforming unit. Other measures include dropping the fresh and frozen food category, and introducing a line of basic apparel, including t-shirts. Game’s restructuring is part of a broader effort which includes moving Makro into the new wholesale division, the shuttering of all of DionWired’s 23 stores and as-yet-unidentified moves across the business including, apparently, at head office. The process is lent urgency by the COVID-19 crisis, which has seen a decline in sales at the already-troubled retail giant: revenue for the 23 weeks through 7 June fell -10.3% YoY. And the share price is down at levels last seen in 2004.

Comment: Massmart is a vital part of South Africa’s dynamic trading landscape. It is to be hoped that the sometimes difficult restructuring returns them to profitable growth in due course.

Game is 50 years old, which for retail journalists of a certain age is an extremely sobering thought. Journalists who as a young lad walked the gloomy splendour of the first Brickhill Road store as their mother marvelled at the cheapness of everything, for example. Fifty years later, and the brand has 150 stores on the continent, success that the brand’s VP of marketing, Katherine Madley, attributes to flexibility. “As consumer behaviour has changed and evolved, the Game brand has undergone constant reforms and innovations to ensure it remains relevant in the minds of consumers and in line with their needs,” she explains. It’s this approach which has shepherded brand loyalists through seven recessions, and with the assistance of a 2019 brand refresh should see them through the current unpleasantness, positioning its deals and bundles as the perfect solution to their problems.

Comment: An icon of the trade. Veels geluk!

Massmart has approached the old man for a bit of help to get it over the COVID hump, to the tune of a R4bn inter-company loan from Walmart. This as it announced that sales for the 23-week period through 7 June totalled R34.8bn, -10.3% down from last year, with like-store sales down a similar amount, and sales in South Africa down -11.5%. The loan, says Massmart, will “provide additional headroom in the event of unforeseen circumstances as we navigate through the lockdown period and beyond.” Translation: the cash will help Massmart through a period of presumably temporary illiquidity, caused by the hit it has taken in sales during the pandemic. This hit included R2.3bn in liquor sales lost during the lockdown in April and May. The Men in Black also project that profits for the six months through June will be -50% down from the same period last year.

Comment: Nice to have a partner like Walmart to keep things flowing during a time like this.

Some moderately good news from Massmart at a time when the business could really use some. In a trading update they reported that sales for the quarter through March were up +1.3% YoY to R22bn, with like-store sales up a more muted +0.6%. This on the back of a terrible 2019, in which the business recorded its first ever loss of R861m in the face of deteriorating conditions for consumers and the underperformance of DionWired, now no more. Chair Kuseni Dlamini remains sanguine, however. “The board is confident that with a clear turnaround plan in place, driven by an experienced leadership team, Massmart’s prospects will improve,” he writes in a letter to shareholders. And indeed, the arrival of a decisive Mitch Slape seems to have got the ball rolling on a turnaround.

Comment: Although, through absolutely no fault of their own, the timing for this turnaround could be better.

Last Thursday, Massmart made the difficult call to cease trading at all 23 of its DionWired Stores, and – at the time of going to press – was still deliberating on the details of the closure of its 11 underperforming Masscash stores. Massmart are in discussions with unions on the mitigation of job losses, and on moving affected workers into vacancies at other stores “where practical and reasonable”. In total, 1,440 workers will be affected. DionWired, as you know, has fallen victim to lower spending on consumer electronics in these straitened times, and on the greater variety and advantageous pricing offered by online retail; in the year through December the Massdiscounters division suffered a R674.6m loss, having delivered a R32m profit the previous year.

Comment: A tough call, with a horrible human cost. But DionWired is hardly alone in this – across the globe, similar retailers are falling victim to the same inexorable forces.

In a gloomy results preso last Thursday, Massmart – which has never sugar-coated the bad news in our experience – let it be known that trading profit declined -46.3% to R1.11bn and operating profit (before forex, interest and tax) declined -55.0% to R852m, on sales that grew +3% to R93.7bn. Sales back home in the Beloved Country grew +2.7%, but elsewhere in Africa looked more promising at +6.4%. Food and liquor sales were up +5.1% to R53.5bn, home improvement grew +2.9% to R14.2bn, while general merchandise fell -1.3% to R25.9bn. Massdiscounters, encompassing Game and DionWired, recorded a trading loss of -R674.6m after a trading profit of R32.6m last year, explaining the urgent focus on that segment of the business. “2019 was a year of under-performance, it was a year of change, reset, and will help us reposition our business better,” says new guy Mitch Slape. “2020 will be a year of change and refocusing the business.” For more, read our one-page summary here.

Comment: There’s no margin for error in these tough economic conditions.

Telling it like it is this week would be Massmart’s New Guy Mitch Slape, who has put retail landlords on notice that they are, how should we put this, engaging in predatory escalatory practices vis-à-vis the rental, upping the price of square meterage at the rate of +6-7% per annum, at a time when inflation is close on half that and the economy crawling along at 1%. “Ridiculous” was the word the diplomatic Mr Slape used to describe. Right about now, every bit counts for Massmart, which is shortly to turn in a full-year loss of around 1.4bn ront. Massmart’s not the only one struggling with high rentals though – it seems that a number of retailers will be downsizing and rationalising their space, and this, inevitably, will lead to a decline in the rent, to the tune, say some experts, of -10%. In other Massmart news, the business is taking Game back to its roots, whipping out fresh fruit and veg and filling that space with inexpensive apparel.

Comment: Tough times, for Massmart, but it’s exciting to see so thorough an overhaul in progress.

Big news from Massmart at the shareholder’s hoedown last Thursday, where Mitch Slape announced that the business is to be reorganised from the existing four divisions into two more coherent business units: Wholesale and Retail, with Makro, Jumbo, Rhino Cash & Carry, Liquorland, Jumbo Shield, Saverite brands and Fruitspot falling under the former, and Builders, Game, DionWired and Cambridge Food under the latter. The realignment is part of a strategy which – according to Massmart – will improve capital deployment, unlock the synergies between trading brands and provide a sharper focus on the needs of both wholesale and retail customers. In effect, it marks the birth of a wholesale giant and an entire new route-to-market approach on the African continent, benefiting from Makro’s existing systems and processes. Despite the poor figures on display, with sales up just +3% to R93.7bn, and headline losses somewhere just shy of R1.2bn expected, punters clamoured for the share to the tune of a +6% rise on the reveal.

Comment: Exciting times. As we’ve noted before, we expect that the turnaround of this great South African business is going to be the big story of the year ’20.

Big changes also in store for Game. Their customer value proposition is unclear, there’s an over-reliance on promotions, a lack of coherence in its offering and some categories – like foods – which have simply not worked. Their words, not ours. So they’re phasing out those categories – including foods, music and movies, bringing in clothing basics, and beefing up their popular categories like baby (or rather, the supplies pertaining thereto), multimedia, and groceries. They’re also improving their customer service, basing it on Walmart’s Happy-to-Help programme. Over to you, Massmart corporate reputation manager Michelle Kemp: “Customers will see better, easier to shop price ticketing, on-shelf merchandising standards and much-improved availability of the products that they are looking for.”

Comment: After some rocky years, Massmart seems to be making the big decisions and the bold moves that will return it to sustainable long-term growth.

Analysts – ourselves included – are rightly concerned about the impact of the coming closure of all 23 DionWired, and 11 Masscash stores on Massmart’s workforce – 1,440 jobs are likely to be lost. There is another group that could be affected though – better heeled, perhaps, but no less embattled. This would be the owners of South Arica’s shopping malls. Last year, you will recall, Edcon closed 150 stores; as the current economy puts the retail sector under further pressure, more retailers could be looking to downscale with the closure of underperforming locations, which is bad news for property owners. DionWired has suffered badly from the rise of online retail, which sees shoppers trying products in store before buying them more cheaply from sites like Takealot. A more rapidly executed omni-channel strategy and an earlier trimming of floor space may have saved the brand, say experts. The only people happy with the move, it seems, are shareholders, who rewarded Massmart with a 5% hike on the news.

Comment: In an environment like this, the travails of Massmart are unsurprising, and will no doubt give other retailers pause for reflection.

Seems like some difficult decisions are being made over at Massmart, where as many as 34 DionWired and Masscash stores face closure, at the possible cost to the business of 1,440 jobs. This as part of a store optimisation project, which has revealed some of the underperformers in the Group and which will no doubt go some way to returning the business to the sort of profitability deemed acceptable by shareholders. The business has commenced a potential store closure consultation with organised labour and other stakeholders. In other Massmart news, a technical glitch saw some Makros closing for the morning last Thursday; normal service was promptly restored.

Comment: This is going to be a year of close scrutiny for Massmart under the new-broom stewardship of turnaround artist Mitch Slape. Pretty sure there’ll be better news to tell when Auld Lang Syne rings in our ears once more.

“So how’s the new feller shaping up?” you enquire. Pretty good so far, would be the measured response. New Massmart CEO Mitch Slape certainly gets about, anyway, conducting unannounced weekly store walkabouts and parking-lot town halls with head office staff that are shared with the rest of the Group. He’s starting to embed a culture of cost control, with an “every rand matters” campaign to sensitise employees to decisions they make every day. He is also looking at instituting Group-wide negotiations on a number of different levels, and reducing rental where possible. The online retail offering is another priority, particularly clarifying Massmart’s approach to food. And finally, he plans on deepening the relationship with the business where he cut his teeth. “I think there’s a tremendous opportunity for us to really supercharge this business with a closer relationship with Walmart in doing a lot of things I know Walmart does incredibly well,” he says.

Comment: Exciting times for the Men in Black. Especially for those managers not expecting the store visit on an idle Friday.

So Game’s had itself a bit of a brand revamp, although thankfully it has kept the pink that drew our startled attention when back in the seventies we first saw it glaring from its Brickhill Road storefront. Brand new payoff line, “You’ve got Game”, lifted, if we are not mistaken, off a Spike Lee movie, and according to the brand and customer director Katherine Madley, “It’s inclusive. It’s a quintessential insight on the everyday swagger that South Africans have. And it’s indicative of the brand and the brand’s personality and nature.” Certainly, it’s a playful nod to the brand’s proud heritage as maybe the first business ever in SA to bring fun into shopping. Whether or not the revamp will be sufficient to revive the flagging fortunes of the business, which has had a couple of lean years, remains to be seen.

Comment: Just what the doctor ordered, though, especially right now: more fun, less money.

No word yet on how the new chap’s working out, but an interesting piece of news this week is that members of Walmart’s Global Sourcing team have been in the Beloved Country this week having a word with 18 Massmart suppliers who have global ambitions. This as part of Massmart’s Supplier Development initiative, which has just past its R1bn procurement mark, and which got CEO of Walmart International Judith McKenna all excited when then- Minister of Economic Development Ebrahim Patel mentioned it to her at Davos last year. The 18 suppliers in question produce everything from dried fruit to gardening tools. Global Sourcing is represented in 27 countries around the world, with a mandate to review products and ensure they match Walmart standards.

Comment: There is much to be admired in the Massmart business. Their Supplier Development Programme is up there with the best of it.

No word yet on how the new chap’s working out, but an interesting piece of news this week is that members of Walmart’s Global Sourcing team have been in the Beloved Country this week having a word with 18 Massmart suppliers who have global ambitions. This as part of Massmart’s Supplier Development initiative, which has just past its R1bn procurement mark, and which got CEO of Walmart International Judith McKenna all excited when then- Minister of Economic Development Ebrahim Patel mentioned it to her at Davos last year. The 18 suppliers in question produce everything from dried fruit to gardening tools. Global Sourcing is represented in 27 countries around the world, with a mandate to review products and ensure they match Walmart standards.

Comment: There is much to be admired in the Massmart business. Their Supplier Development Programme is up there with the best of it.

The analysts are all of a twitter (and not the kind you read on your phone) this week, with the arrival of Mitch ‘The Fixer’ Slape from Walmart. They all have some ideas for him. “Cut costs,” says Petri Redelinghuys of Herenya Capital Advisors, pointing out that across the Group expenses were up by close to a billion. “Fix Game,” chorus Cassie Treurnicht of Gryphon Asset Management and Stephán Engelbrecht of Anchor Capital. “The stores look dated,” says the former, and “food seems like more of a hassle than its worth,” says the latter. “Build a proper online retailer,” argues Schalk Louw, portfolio manager at PSG Old Oak. Woolies grew online locally +30% last year, Massmart shrunk it -14% due to third-party issues, and in the meantime, Takealot is going gangbusters. Ron Kiplin of Cratos Wealth isn’t afraid to go one further: “It looks like Slape is going to change Massmart’s fortunes by major cost-cutting,” he boldly predicts, “Possibly rebranding the company and a potential selling of non-core assets. He might even make the Group more focused on the Walmart format, by doing things the Walmart way.”

Comment: Attaboy Mitch. No shortage of sound advice, if you know where to look. Hint: everywhere.

You know it’s going to be bad when they bring in load shedding. And so it roved with Massmart, whose sales grew +5.5% to R43.8bn for the six months through June, but whose costs outstripped those, for a net loss of R832.4m. “Cash-strapped consumers continue to spend proportionately more on our sales promotion activities which causes further gross margin pressure,” they said in an accompanying statement, and also pointed to general elections in two African countries where they trade, depressed GDP growth back home, and yes, load shedding. Outgoing CEO Guy Hayward also acknowledged “various internal missteps”, without specifying the precise nature of these. Throwing a bone to the punters, Massmart mentioned that sales tended to skew more heavily to the back half of the year where Black Friday and Christmas feature prominently. For Ti’s summary of the results, click here..

Comment: Tough times for Massmart indeed. Our sincere hope is that now the only way is up.

Ok, now we now know more about getting a South African work visa if you’re a globetrotting CEO than we had ever hoped to. It turns out that has been the delay for Mitchell Slape, who in order to work in this haven of law and order has had to obtain police clearances for all of the other countries he’s worked in, including India, Japan, Mexico, China, Argentina and the US. His arrival couldn’t come too quickly for the retailer, which as documented last week, has conducted something of a purge of senior management – or alternatively suffered a spate of resignations – at a couple of its underperforming divisions. An anonymous analyst has said that he expects that Slape is going to move through the business like a dose of salts, and that a major change in direction should be expected, but that any turnaround – which may involve a major overhaul of the portfolio – could take two years or more.

Comment: Tough times right now, but this is going to be one of the big stories of the next two years.

A grave trading update from the Men In Black, who have let it be known that they are expecting losses of between R530 to R550m for the six months through June once the final reckoning is done, having achieved headline earnings around R204m last year. This on the back of losses totalling between R395 and R425m over at the troubled Massdiscounters division, where there has been a staffing shakeup, with Albert Voogd out as CEO, Andrew Stein in as interim, Riaan Turton as FD and Kathrine Madley and Neville Hatfield as marketing and merchandising directors respectively. The Masscash division is likely to report a trading loss of between R180m and R210m, blaming like Massdiscounters a downturn at the lower end of the market. CEO Kevin Vyvyan-Day is handing the reins over to Deepa Sita as interim. Group wide, say Massmart “much of the lower profitability is caused by the soft sales, margin pressure from the lower sales participation of general merchandise and expense growth caused partly by the new Makro store opened in Durban North in March.”

Comment: Troubling stuff. We look forward to the turnaround of which we know this great South African business to be more than capable.

It seems that the Wakro experiment, as we waggishly used to call it, is not over. Well, we knew that: the appointment of Walmart’s ‘fixer’, Mitch Slape, to the top job at Massmart sends a strong message, and it’s one that some analysts at least are apparently pricking up their ears and listening to. They point to Massmart’s intention to build 47 new stores between 2019 and 2021, mostly in Kenya and Zambia as a mark not of declining confidence in the home market, but as a bullish investment in geographies with higher economic growth and minimal penetration of formal retail, that are also a good fit for some of Massmart’s big box formats. Some have also suggested that with the Massmart share price down 60% since the initial acquisition, Walmart might be considering going all in and buying out the minority shareholders.

Comment: A story still in the making. We look forward to its next exciting chapter.

Walmart are proving surprisingly chatty about their plans for Massmart, having, as you know, named a “fixer” from within their own ranks, Mitch Slape, to succeed Guy Hayward as CEO. Speaking at a Deutsche Bank-sponsored global consumer conference, Richard Mayfield, CFO of Walmart International, shared some of the thinking. “I think the first job is to trade the business well, but clearly, we’ll be reviewing the portfolio of businesses and the operating model. I think there is a lot of opportunity for efficiency and cost savings.” Much work has been done in the Massmart business on these themes over the past two to three years. The savings to which Mayfield refers are related to the often overlooked goods not for resale (GNFR), which can push costs up by +25%, and include consumables such as shopping bags and till slips, equipment like fridges and services such as IT support – areas where, in other words, the economies of scale possessed by a Walmart might come in handy.

Comment: The past two to three years at Massmart have been defined by a significant amount of ‘back-end’ work, focusing on cost control, organisational re-structure, streamlining supply chain infrastructure for margin and efficiency etc. We look forward to seeing the impact of this work and new leadership on the numbers – a strong Massmart business is a strong vote for our economy and FMCG industry.

As a mark of their continued interest in Massmart’s fortunes, and perhaps as a vote of confidence in this troubled economy of ours, Walmart are dispatching one of their own, Walmart Japan CEO Mitchell Slape, to take the reins post the December 2019 exit of Guy Hayward. This suggests that the Big Feller is going to become more involved in the control of day-to-day operations, and even, some analysts suggest, that Walmart might be looking to take full control of the Group. This despite the declining share price, which has seen Walmart lose around 80% of the value of its initial investment. Or perhaps because of it: the other 49% of the business could now justifiably be considered a bargain if a turnaround is in the offing. Slape, who is an old Walmart hand, has served the group in Mexico and in India as COO. In Japan, he was in part responsible for the turnaround of the ailing Seiyu chain. If his experience there is anything to go by, store revamps and the growth of online are likely to be on the cards.

Comment: A development we will be watching with considerable interest. A strong Massmart business is a strong vote for our economy and FMCG industry.

As a mark of their continued interest in Massmart’s fortunes, and perhaps as a vote of confidence in this troubled economy of ours, Walmart are dispatching one of their own, Walmart Japan CEO Mitchell Slape, to take the reins post the December 2019 exit of Guy Hayward. This suggests that the Big Feller is going to become more involved in the control of day-to-day operations, and even, some analysts suggest, that Walmart might be looking to take full control of the Group. This despite the declining share price, which has seen Walmart lose around 80% of the value of its initial investment. Or perhaps because of it: the other 49% of the business could now justifiably be considered a bargain if a turnaround is in the offing. Slape, who is an old Walmart hand, has served the group in Mexico and in India as COO. In Japan, he was in part responsible for the turnaround of the ailing Seiyu chain. If his experience there is anything to go by, store revamps and the growth of online are likely to be on the cards.

Comment: A development we will be watching with considerable interest. A strong Massmart business is a strong vote for our economy and FMCG industry.

The analysts have been having a field day with the resignation of Guy Hayward as CEO over at Massmart, as they do, taking this as an opportunity to weigh in on Walmart, the economy, and even the tenure of Mark Lamberti, two CEOs ago. It’s generally, if not universally, considered that Mr Hayward was handed a tough job when he took over in 2014, after 14 solid years of growth for the retail sector, and just before things went belly up for just about everyone. Some kinder prognosticators noted that under his tenure the organisation has made significant strides in the areas of efficiency and organisational structure consolidation, and on Walmart, the sharp-suited ones were divided, with some suggesting that had the Competition Commission allowed The Big Feller its full 100% of the business, Walmart might have had free rein to run things according to their own terms and we’d be looking at a different story right now. Others, pointing to Walmart’s less than impressive performances in Brazil and the UK, say thank goodness it was only 51%.

Comment: Can fingers be confidently pointed right now? We hold judgement in anticipation of the potential positive impact that the efficiencies and consolidation could bring going forward.

The big news from the Men in Black this week is that one of their lead numbers is to hang up the ceremonial suit: CEO, Guy Hayward will be leaving the business come December 2019. “Guy has guided Massmart through exceedingly challenging market conditions and has worked to position the business for future growth,” says an official communique from the business, which points to the value-added services and shared group logistics services introduced and competitive online offerings in Makro, Game and Builders Warehouse implemented on his watch. We at the Trade Tatler wish Guy well and look forward to seeing the impact of these significant developments in organisational structure, online and VAS on the Group’s operational efficiencies and profit performance going forward. Although there is no word as yet as to Guy’s successor, on the CFO front, taking over from Johannes van Lierop will be Mohammed Abdool-Samad from Illovo – the company that is; we have no idea where he lives. In other Massmart news, the newly-minted Builders Warehouse in Boksburg is a showcase for the future of the brand, with roving payment devices, 3D printing facilities and from a style and selection perspective, a more woman-friendly environment.

Comment: Big news re Mr Hayward; more will surely follow in the days to come.

Yes, we know, we covered the Massmart results a few weeks ago. But with Massmart being the most diversified of South Africa’s major retailers, a closer look is perhaps instructive for other businesses struggling under the current economic climate. Massdiscounters, of course, was a wash, with sales down -1.2% to R19.7bn and trading profit 91%, to R32.6m, on the back of the yet-to-be-proven move of head office to Joburg. Massbuild, generally a reliable source of both sales and profits, saw its bottom line flatten under depressed consumer demand. Masswarehouse – that’s Makro and Fruitspot to most – grew sales +5.4% to R28.8bn, but trading profit fell -12.4% to R1.1bn, in the face of high costs growth of +9.2%, and stock control challenges off the back of the strong move to fresh produce, with unexpected additional stock losses for which 20 people including managers were given their marching orders. Some good news from Masscash (Rhino, Jumbo and Cambridge), where comparable sales grew +2.1% to R28.7bn, and comparable trading profit +48.4% to R188.6m, on good expense management and what we trust is the beginning of the ship turning for the division that competes most strongly with the powerful independent wholesale and retail trade.

Comment: At a time like this, control of expenses through efficiencies is (almost) everything.

Here we are at the bitter end of what has been a bruising results season for almost everyone. The Men in Black have proved no exception, with sales up +2.9% to R90.9bn for the year through December, but trading profit down -16.8% to R2.1bn. Massmart has of course been up against the same conditions which have plagued the rest of the industry – slack economic growth, the VAT increase, unemployment, deflation in food and durable goods, and higher fuel prices – but has also had to absorb some R161m in restructuring costs, particularly related to the move of Game’s head office to Gauteng. Game itself has underperformed, with sales in the Massdiscounters unit declining from R20bn to R19.7bn, as traditional supermarkets muscled in on Game’s stronghold in GM, while Game failed to return the compliment in Food. On the upside, the business has plans for 47 store openings across the Group, including the promising geographies of Kenya and Zambia, and the tiny kingdom of Cornubia, where Makro’s largest KZN store is soon to open.

Comment: Tough times, but Massmart are not sugar coating it, and have the grit and, it seems, the strategy to come back swinging.

So the Deloitte’s (grandiosely titled) ‘Global Powers of Retail’ 2019 report is out, and good news for Shoprite, in a bittersweet way, is that with the collapse of Steinhoff into scandal and penury, the Big Red One was our globalest power of retailness back in FY2017, in a solid 86th place. SPAR made it into 140th place, with Pick n Pay in third at 160th and Woolies at 179th. Number one was Walmart, with turnover of half a trillion dollars, followed by club-discounter Costco at $160bn. While our retailers are relatively small globally, Africa looks promising, second only to Latin America in regional growth in that FY. And retail itself seems a good space in which to operate: the top 250 cumulatively grew revenue +83% over FY2017, for total global value of $4.5trillion.

Comment: A bit of perspective there. SA retail is relatively small, globally, but has lots of potential, while in terms of shopper in-store experience and ranges on offer – it can be argued – sits alongside those at the top of the log.

A trading statement from Massmart last week, and a corresponding -20% drop in the share price. According to the Men in Black, sales for the 52 weeks through December grew just +2.9%, or +1.2% on a like-store basis, with sales growth slowing in all divisions except Massdiscounters (Game and DionWired) over November and December, despite satisfactory Black Friday sales. Part of the problem is of course the state of our economy: no sooner was the Walmart acquiring finalized than the effects of Zumanomics (one for you, two for me, three for the party and a couple for the guy building the new stadium) started kicking in, leaving economic growth where it is now, at a shaky 1%. It could also be argued (as some analysts do) that neglect on the part of the new parent company has played a role: Walmart has had much bigger fish to fry in India, China and online than the African market. On the other hand, it is also argued that Walmart’s requirements in terms of organisational structure, processes and product standards, have shackled Massmart’s ability to operate lighter on its feet, making competing against the independents difficult – from the types of products on shelf through to the freedom to trade on the shop floor.

Comment: The one thing Massmart has never lacked is the ability to take a good hard look at what they could do better. This should stand them in good stead in a time when change seems needed.

We’re not going to say it, you can’t make us, bllngghmmgh….Black! Black Friday!!! Makro, traditionally the home of cut-price electronics in South Africa, are indeed going all out this Black Friday, with 26,000 lines on offer over five days, a new mobile pay-point system to speed up those smaller purchases on the way out, a new online drive-thru service at the Makro Riversands store, which (their words) “is a never-been-seen-before feature at a retail store in South Africa, enabling customers to collect their online items in an even more convenient manner,” a flat R70 delivery fee for both online and instore purchases, a R50 Uber discount to and from Makro stores and 10% back on your mCard.

Comment: Despite the profitability challenges that Black Friday presents, retailers need to face the reality of the position it now holds on the retail promotional calendar head on. The enthusiasm and inventiveness with which our retailers have embraced this annual pre-holiday bacchanalia of buying is, we suppose, a credit to them.

Among the headaches Massmart and SPAR didn’t think they would be facing this time last year, would be the arrival in South Africa of an eccentrically named French purveyor of home improvement materials. And yet, here we are. Leroy Merlin – the third largest retailer in the world – has just set up shop in Stoneridge Centre, Edenvale, Gauteng, with 17,500m2 of floor space, every department you can imagine from plumbing to lighting, a large selection of brands imported from Europe and – get this – a Mugg and Freaking Bean. And something called a Workshop Fan Group of likeminded handy people who get together every month to chat about how much they enjoy changing lightbulbs and installing cat-flaps. This group was established some 15 months ago as part of the advance brand-building operation, and sounds millennial as all get out to us. And as if all this isn’t enough, they’re pioneering a type of business they’re calling “phygital”, which…actually we can’t.

Comment: We just can’t. But: it sounds like an impressive operation that will appeal to those weekend warriors who pride themselves on a certain je ne sais quoi.

A Walmart spokesperson: “We remain committed to investment in Africa and are well-positioned to foster development and growth in the region through investments, distribution supply chains, agriculture, technology and job creation." Translation: “OK, the Massmart deal has been good. We’ve doubled our turnover on the African continent, and turned a reasonable profit. But the business hasn’t exactly gone ballistic. South Africa’s challenging, Angola’s gone sketchy on us, and Nigeria is frankly insane. We’ve pulled out of Brazil under new (and slightly more recently embattled) CEO Doug McMillon, although Brazil was a disaster. Looking at Massmart currently, they’re taking a short to medium-term hit in profitability. But their focus is on alignment and optimising supply chain infrastructure, reducing operating costs at regional and head office levels and establishing format clarity – all of which are a good infrastructural base for us to leverage growth in Africa – it’s just taking longer than we initially thought

Comment: So – they’re probably going to stay in Africa, and with Massmart, for now.

How’s Massmart’s migration to the misty enchanted uplands of omnichannel going? Well, for starters, online sales across four Massmart trading formats – Game, Builders Warehouse, DionWired and Makro – increased by +47% this last FY, according to Kuseni Dlamini, Non-Executive Director of Massmart. And if you don’t believe him, and you have no reason not too, you should check out our own report on all things Massmart, available soon. We’ll keep you posted.  But back to them, the intention is to further invest in back-end development to support and prepare each division for the growth of the Massmart omnichannel platforms, achieving improved inventory accuracy, master data, extended assortments and improved fulfilment, inter alia. “We are alive to the growing presence of online shopping and digital activation in our customers’ lives and the effect it has on their shopping behaviour and needs,” says CEO Guy Hayward.

Comment: Leveraging Walmart’s massive and growing online presence might be the smartest move and the biggest differentiator for Massmart right now.

True story: when we started Trade Intelligence, retailers complained about “cell phones and the Lotto” as the perfect storm of factors which prevented shoppers spending money in their stores. This results season, the refrain is “slow growth, VAT and fuel price hikes.” Massmart (et al) have been hit hard by these this last year, as last week’s HY results demonstrated. But there have been other factors, not all of them external – the move of Game Head Office, as an example. And speaking of Game, it seems that its seven-year experiment in fresh food may be scaling back somewhat – at least in the smaller stores, which will get smaller ranges according to CEO Guy Hayward.

Comment: Massmart is a great South African business, with areas of enormous innovation and excellence – hello Makro. Lean times are a great teacher for those positioned to learn their lessons.

We couldn’t say it better ourselves, so we won’t: “Massmart reports interim results in severely constrained consumer environment characterised by soft demand for durable goods and significant major food commodities deflation”. That in a nutshell. But if it’s the numbers you have a hankering for, here they are: like-for-like sales for the 26 weeks to July grew +1.9% to R41.6bn, while trading profit before interest and tax was down -19.5% to R664.2m. The Group's like-on-like sales declined -1.5% in Food, but grew 9.2% in Liquor, 0.9% in Durable Goods and 7.6% in Home Improvement, proving once again that in good times and in bad, beer will always be king. And just because we like to find a silver lining there’s this: online sales climbed +69% with 159% growth in online traffic to Group online platforms indicative of the Group’s strong focus on omnichannel retailing.

Comment: Keep on keeping on is what we say. With its pursuit for new revenue streams, surely brighter days lie ahead for the Group… consumer economy and policymakers permitting.

Here’s an interesting little piece from Massmart which illustrates the value of talent to our retailers, as well as the perils of poaching: when Jacques Theron, head of business intelligence over at Massmart got the offer from African Bank, he jumped at the chance, perhaps desiring a break from the hurly burly of retail at a difficult time for the sector, or perhaps not, we’re speculating. In the natural order of things, Massmart threw him a valedictory happy hour, gave him a very nice Casio watch, and appointed his subordinate to succeed him. The subordinate also promptly jumped ship, lured by the greener pastures over at – you guessed it – African Bank. Smelling a rat, Massmart sued Theron for the cost of replacing himself, plus interest, in a rare and successful enforcement of the non-solicitation clause.

Comment:

We don’t judge the performance of a business solely on its headline earnings per share – it’s a dangerous lone indicator. But there are some who understandably do, and for them the case of Massmart is a cause of some concern, with HEPS expected to decline by somewhere between 16% and 26% for the six months to end June 2018. Perhaps more worrying, it’s the only major retail share to have declined since the Walmart transaction of 2010, with Shoprite and SPAR more than doubling in price, and Pick n Pay climbing by +68%. Massmart’s exposure to general merchandise is partly to blame. So too is stunted growth in Africa, which is seemingly stuck at around 8%. And frankly, Walmart’s vaunted buying power has failed to come on stream, leaving Massmart to compete on an extremely contested playing field price wise.

Comment: Massmart is a retailer we have long admired. It is to be hoped that the business may soon see more positive results as it navigates its way through our tough trading context.

Massmart have a long tradition of talking down their prospects then whipping out the old pleasant surprise come results season, and this interim period is no different: sales up +1.9% for the six months through June for a total of R41.6bn, with like store sales up +0.2%. This modestly pleasing result, analysts believe, can be attributed to rising consumer confidence tempered by the fuel price and VAT increases. The same analysts – or different ones, we don’t honestly know – confirm that Makro and Builders Warehouse contributed the lion’s share of the growth. One thorn in the side of the business is the Shield brand, whose results are no longer included in the reporting, except in the case of margin. Counting Shield, Massmart would have shrunk sales by -2.2% for the half.

Comment: Still, solid stuff from a business weathering the economic storms while still serving poorer South Africans.

Good news for the Men in Black, at a time when they have seen precious little of the stuff from the analysts, is that Sentio Capital have identified them as a good buy against the time when the dear old SA economy bursts through the two percent growth mark and really gets going. Sentio point to Makro and Builders Warehouse as the two divisions to watch – and indeed, they have been the performers of the Group through this depressing ambit. This, after a trading update last week which saw shares fall -18% in a single day on the news that sales for the first 18 weeks of the FY2019 were up just +0.8% to R31.4billion, with food sales actually down -2.3% and the Massdiscounters and Masscash divisions taking particular strain, at a time of transition and difficult choices for both businesses – each with their own challenges and indeed opportunities.. By contrast, Masswarehouse (which encompasses Makro and Fruitspot) was up +5.6% and Massbuild +6.1%.

Comment: Hard work ahead, but definitely some silver linings for Massmart, a ship whose movements seem linked more closely with our economic tide.

Seven years ago, you may recall, Massmart relinquished a controlling interest to Walmart for the princely sum of $2.3bn, and great things were expected, with the two combining forces steamrolling the competition from Durban to Dakar, or indeed from Naboomspurit to Nairobi, or even Zeerust to (that’s enough. Ed)… where were we? Ah yes. In the intervening period, a couple of things have happened: the retail environment in SA has gotten tougher, and Walmart have not in fact gotten going, although Massmart itself has responded with commendable grit. And Walmart has become distracted by the ceaseless onslaught of Amazon and taken the necessary steps, like the acquisition of Naspers’ 11% stake in Indian online retailer Flipkart. India is seen as a market with perhaps more urgent growth imperatives than Africa, where Walmart seems inclined now to take a longer view. Massmart, in the meantime, is making strides into omnichannel, growing online sales ±47% in 2017, and planning on doubling its floor space by 2020, with the addition of 200,000m² in geographies which include Ghana, Kenya, Nigeria, Zambia, Mozambique and Swaziland.

Comment: Tough times for the Men in Black at the mo, but we see better days ahead. Perhaps much better.

Massmart has a tradition of underplaying its results in the days leading up to their announcement, but this time, the punters took them seriously. Having hinted at an almost 70% decline in interim earnings for the six months through June, on the back of slower spending at the lower end and a R112m restructuring exercise, the Men in Black saw their share price tank by almost 20% on the JSE last Friday. The restructuring in question saw the relocation of the Game head office from Durban to Gauteng, and with it the loss of a number of jobs. Massmart argue that the restructuring will save R52m per annum in the long run. Syd Vianello, doyenne of retail analysts, has commended the Group for its frankness. In more positive news, Massmart has been named the overall winner of the inaugural ABSA Business Day Supplier Development Awards for businesses that are building a better South Africa and an inclusive economy through innovative and impactful supplier development initiatives.

Comment: Massmart is running the hard yards at the moment, and has been for some time. It is to be hoped that their perseverance will pay off.

Massmart grew sales just +1% for the 2017 financial year, as documented in its recently released annual report, and according to the business, sales for the first 12 weeks of 2018 have also been soft, contracting on a like-store basis, with food and liquor outperforming the durable goods to which the Group has significant exposure.

Comment:

Singing the praises of the Men in Black this week were the imbongis over at Business Report, who in a paean to foreign investment, singled out Massmart for special attention. “The Walmart-Massmart deal brought jobs, skills development and more consumer choice to South Africa,” they exclaimed. “The deal has also brought massive benefits to local companies by opening doors to export deals to them,” they raved, citing the example of Umlilo Charcoal, which last year shipped a container of the combustible stuff to a Chilean Walmart partner. In other Massmart news, they’re thinking of relocating the Game Head Office to Joburg, giving it greater proximity to suppliers and the other Massmart divisions, but dealing a blow to its KZN heartland, where it first raised the proud Magenta banner sometime in the 70’s.

Comment: At a business performance and infrastructure consolidation level – a solid move – but the price? The loss of a significant corporate head office in Durban, and the jobs of those unable to relocate; this is the dilemma facing corporate business in the 21st century. How do we balance looking after our people and delivering the profit numbers to meet the demands of financial analysts and shareholders? This remains the challenge.

Nice work from Massmart whose Makro Riversands store took gold in the department store category of the prestigious global ‘Shop!’ design awards. Makro is in good company, with winners in other categories including KFC and Galeries Lafayette in Paris. Nice work Riversands, with its cathedral-like interior space, glowing fridges and massive signage which make it truly stand out. Have a look for yourselves, here. 

Comment:

Look forward to another 20 Massmart stores in the Motherland in the next three years. This according to the chairman himself, Kuseni Dlamini, speaking at the Africa CEO forum in Abidjan, Ivory Coast. Specifically, he says, new stores will be popping up in Kenya, Mozambique, Zambia, Swaziland, and interestingly, Ghana, at a time when most retailers are focusing their efforts in the burgeoning east of the continent. “We see ourselves as playing a catalytic role in the modernisation of African retail,” he says, then goes on to qualify this bold assertion. “We are deliberately very cautious and measured. It’s a very measured strategy, because we’re in it for the long term.” The programme will see Massmart expand its footprint outside South Africa by around 36%.

Comment: Cautious and measured is all good and fine in moderation. Expansive and explosive might be the way to go after Shoprite though.

The move into healthcare has been a global retail trend for the better part of a decade now, and it’s about to kick into overdrive, as Walmart eyes medical insurance giant Humana for possible acquisition, and Amazon makes a number of opaque but highly significant moves in the direction of healthcare too, including the distribution of supplies into hospitals and clinics. On a more modest scale, Nestlé have brought to market a healthier Milky bar with 30% less sugar than rivals. And closer to home, IMPERIAL Logistics is expanding its healthcare warehouse facility in Centurion, with the addition of space and technologies which will help clients to quickly and cost-effectively deliver life-saving medicine to their customers and patients.

Comment:

Big up to Game and P&G for repeating their successful clean water programme which supplied roughly 2.4million litres of clean water to needy communities in 2017. From 14 February to 10 April this year, money from every P&G product bought at Game goes towards the supply of clean water. Funds raised finance P&G’s Children's Safe Drinking Water Programme (CSDW), which donates P&G’s Purifier of Water packets to needy communities throughout the Republic. Nice one.

Comment:

Results from the business which for time immemorial we have been calling the Men in Black, we’re not sure why. Perhaps it was because they always struck us as sharp-suited and serious of purpose, and were given to wearing predatory sunglasses, who knows. We digress. The real story here is that the Massmart results (as documented here by Trade Intelligence) tell the story of a retailer consolidating its position and doing its darndest to extract efficiencies. But more on that later. Looking at the numbers, group sales for the 53 weeks through December were up +2.7% to R94bn, with operating profit (before interest) down -0.9% to R2.49bn compared to the last year’s 52 weeks. Total expenses were up just +1.2% for the period, and down in comparable terms to the tune of -1.3%, while online sales ramped up a massive +47%. Africa is also looking promising – while stores on the continent grew at +3.5%, they’re outperforming competitors by a factor of four, and the plan is to grow retail space by +36% in the next three years

Comment: Consolidation has been a long time coming for Massmart. A healthy business is good for the shareholders, good for its people and indeed our country. But often the price of consolidation also has a human face. Our hope is that those making the calls may find ways to mitigate these costs too.

Back in 2015, you will recall (although it seems a lifetime ago) Massmart brought a complaint to the Competition Tribunal to the effect that exclusivity agreements between shopping malls and the big three grocery retailers – Shoprite, Pick n Pay and SPAR – were preventing it from opening its new Game Food offering in existing stores. The big three objected to the objection, and the Tribunal decided to uphold their objection but allowed Massmart to file an amended referral. This they did, and, the Tribunal moving at a glacial pace, have once again just had it thrown out of court, with costs, and without the option of referring the issue again. Over to you, Massmart spokesperson Annaleigh Vallie: “We remain of the view that exclusive lease agreements are intuitively anti-competitive, protectionist and prejudicial to South African consumers.”

Comment: Over in the US, of course, malls seem to be able to do without grocery retailers as anchor tenants. It’s just possible that the big retailers have more swing than is strictly warranted, and that a more laissez-faire approach may not in fact hurt property owners at all.

The last in this spate of trading updates comes from the Men in Black. Massmart grew sales for the year to December just +2.7% to R93.7bn, with like-store sales down -0.8%. Masswarehouse, comprising Makro and The Fruit Spot, increased +3.9%, a brighter spot amid the gloom, with Massbuild up +2.4%, Masscash +0.4% and Massdiscounters down -2.8%. Do Massmart wring their hands? They do not: rather, they let it be known that the second half of the year was better than the first with improved comparable performances in both Massbuild and Masswarehouse, attributed to effective management of debt, working capital and expenses. Certain level-headed commentators have remarked that the business has shown some improvement in volumes but not yet in the bottom line – the former a good sign, the latter the result of a market in the midst of extreme price competition across categories.

Comment: Massmart is doing many of the right things to return to more robust growth – but in this economy, with this scale of business, this is no easy feat.

Game launched its ecommerce offering last week, don’t you know, and without too much fuss or fanfare. Game Online, as they’re rather catchily calling it, seems like a solid online retail offering, emphasising width rather than depth across the categories one would typically go to Game for; appliances are perhaps their strongest suit, as one would expect. Although they’ve gone with groceries straight out the gate, too – biscuits, chips and snacks offers an appetising assortment of 930-something lines for example – and this move will surely boost the profile and the sales of their still-nascent food offering. Good clean interface, extremely navigable and easy to pay, which tempted us sorely to put a nice 5-burner gas hub and electric oven on the poor old Tatler credit card.

Comment: The best feature of the site is of course that glorious Game pink, as fresh and cheeky as it was the day it was revealed at the Ordinance Road store back in 70-something.

Taking strides, if you will, into SPAR and Boxer territory this week is Massmart, which has just launched its own elite women’s running club. Team Massmart currently sponsors eight superfast women, including founder Ann Ashworth, the winner of this year’s Loskop Marathon. The idea is to throw Massmart muscle behind a relatively under-supported sport while presumably picking up some profile and goodwill for the brand.

Comment:

Pick n Pay is beating Woolworths, Clicks and Game, any number of cute cat/llama combos and your last Mauritian holiday on Facebook, reporting over 1.7 million likes in the last three months. Elsewhere, Woolies is beating all comers with 400,000 twitter followers, 250,000 Instagram followers and 9 million views on YouTube. This according to research by Ornico, anyway. Our research indicates that they’re all pretty much even when it comes to mentions in a certain influential weekly e-newsletter though.

Comment:

Excellent work from Massmart, which is bringing along 33 smaller businesses in its Supplier Development Programme. Of these, 13 are private label projects, eight are import substitution projects and six are exporting products as far afield as New Zealand. One such is Umlilo Charcoal out of Hartebeespoort, which supplies briquettes to all Builders stores in Southern Africa and in addition to New Zealand, also exports to the Middle East and Walmart Chile, Chile being a place, we are told, where cooked meat is much esteemed.

Comment:

 More shaking up amongst the Men in Black who back in May, you will recall, announced that Masscash’s Jumbo Cash and Carry brand will soon be known as Jumbo Wholesale. This as step one in a move to bring all of the Masscash wholesale stores under a single brand. Step 2: merging the Jumbo and Cambridge businesses, thus bringing Masscash’s wholesale and retail businesses together, doubtless with a view to simplifying the business and achieving efficiencies in relentlessly tough times. They’re also putting some heavy hitters in place, with Kevin Vyvyan-Day stepping in as CEO of the division, Neville Dunn and Craig Surmon in charge of wholesale and retail operations respectively, and Bruce Cayzer in charge of merchandise. 

Comment: Tough times abound, with organisational changes happening across the board, from retailers to suppliers. The key is getting the right people in the right seats managing the right combination of trading brands. Just like that.

Speaking to analysts on the presentation of the Massmart interims, Flight Lieutenant Hayward pitched it pretty strong about the dear old South African Govt.: “Continued high levels of economic volatility and political uncertainty complicate any useful outlook,” he said. Simon Susman, in the Woolies annual report, was less diplomatic. “How difficult it is,” he thundered, “even for a free nation, to remove corruption when… it starts at the top” and carried on in much the same vein for 750-odd words. We look forward to a time when the reporting of our top businesses can go back to P and L’s and inventory levels and stuff being amortised against other stuff. 

Comment:

Massmart interims up next, with sales up +0.5% to R42.5bn for the six months through June, and operating profit down -6.6% in what CEO Guy Hayward describes as “the most difficult trading period we have experienced.” It’s a mark of just how tough things are that analysts are calling this a tidy set of numbers. Hope was generated by food and liquor, where some growth was achieved, and extreme cost control. Also stiffening the resolve of shareholders was the supply chain, where new guy Richard Inskip has been working some magic, slashing inventory and generally tightening things up; and the fact that parent company, Walmart, have repeated the assertion that they’re in it for the long haul. For a more detailed view of it all, click here.

Comment: Tough times, and there’s not much to be said beyond that, other than the investment the Men in Black are making in efficiencies now will position it for good growth when the turnaround comes.

Excellent work in the community this week from Massmart, who have just launched their inaugural Urban Bookshelf, a free community mini-library, at the Phefeni Recreation Centre in Orland, Soweto.  No fees, no cards, just access to a curated collection of 400-500 books for communities where they are needed. Other locations have been identified around Joburg; it is to be hoped that the project gains traction and is rolled out nationally.

Comment:

Bad news from the Men in Black over at Massmart, who have issued their mid-year trading update: in the 26 weeks through to 25 June, sales grew just 0.5% to R42.5bn, against internal inflation of 3.2%, with like-store sales declining -1.6%. Going through the divisions, like-store sales were down -3.5% at Massdiscounters, -0.2% at Massbuild and -3.3% at Masscash. The glimmer of light emanated from Makro, with Masswarehouse like-store sales up 1.5%, admittedly against inflation of 3.9%. Food sales outperformed clothing and GM, with the former increasing 3% and the latter declining -2.9%. Analysts were not what you’d call flabbergasted by the announcement, with most seeing prospects for improvement in the second half, particularly if a rate cut comes through, and chance of a modest turnaround in 2018.

Comment: Again, the performance of our retailers, in both food and GM, is directly proportional to the poor economic and shaky political circumstances of our current ambit. And in the case of Massmart, it is a time of back-end efficiency focus and driving relevant cross-divisional collaboration, which will no doubt start shifting performance over the next year.

So Massmart have joined the loyalty arms race with the launch of the very catchily-titled mRewards programme. Through mRewards, shoppers will receive cash back simply by downloading the nifty mCard app, registering and buying participating products in various categories from Makro stores. The cash is collected using the app, and stored in something called an mWallet, which incidentally also allows Makro and its suppliers to interact directly with customers. From the mWallet, the cash may then either be spent in any Makro store, donated to charity or transferred to another mWallet. The mCard app also stores your existing Makro access card, which is dead handy for anyone who has made the trek to pick up a new washing machine or a bulk order of Fizzers for the six year old’s party only to remember that you left your card under the phone bill on the hall table. mRewards reportedly offers returns at substantially better face value than competitive programmes – by 15% and more. We know that one of the mainstays of a successful brand-based loyalty programme is supplier buy-in, and on this front, Makro has done reportedly very well after the successes of the “100 Rand Deals” and “More for Less” promos.

Comment: The integration of the iconic Makro card with rewards and a very nice mobile platform is a smart move.

Nice work, those Men in Black: Massmart’s now well-established supplier development programme has helped 32 emerging suppliers to gain access to a competitive market, generating an estimated R290million in sales for these businesses. And we’re not talking misshapen carrots here, either: Massmart buys everything from cooler boxes to window frames, paints, bathtubs, adhesive and furniture from suppliers identified by the Economic Development Department under an initiative pioneered by Ebrahim Patel.

Comment: If you happen to have carelessly misplaced your cooler box, head down to Makro, where you’ll pick one up at a good price while doing a solid for the smaller guy at the same time.

For some reason, Massmart has always been one to espouse the cautious view of how things are going and this financial year is no exception. Having expressed – again, cautious – optimism at the end of the 2017 FY, what with the drought ending, lower interest rates and declining food inflation, they’re back into negative territory after a sober assessment of their first-half performance. Disappointing sales in areas like general merchandise, they believe, can be attributed at least as much to shaky consumer sentiment as to the underlying economic fundamentals, and sentiment took a hit with the ratings downgrades and the political events which preceded them. Total sales grew just 0.3% for the first 21 weeks of the financial year, but comparable sales declined 1.9%. There are some positives, however: market share was up in all key categories, and food growth is outperforming the sector. 

Comment: There’s something refreshing about Massmart’s sometimes gloomy pragmatism, and there’s no doubt they’re making strides in important strategic areas, with particular lows on back-end efficiencies, and divisional collaboration.

Not quite the Loxodonta Africana David Attenborough would get excited about, although we think he should. Masscash’s Jumbo Cash and Carry brand will soon be known as Jumbo Wholesale, a name reflective of the scale and evolving market significance of the business. Last week we learned of the transformation of what we currently know as Masscash Wholesale.  And let’s be clear: “This journey is not just about changing the signage on our stores, but the shift is also about transforming the business from the inside out,” says Phumzile Siboza, Masscash’s Marketing Exec. Exciting stuff that will bring all Masscash Wholesale stores under a single brand – and that’s just in terms of shopper facing identity – it is the significance of the move for Masscash Wholesale and the route-to-market that we are excited about.  And in other Jumbo news, Jumbo Crown Mines, which burned down in Feb last year, was reopened recently, serving 14,000 customers in its first week in a premises that is more than double in size what it was before.

Comment: We will unfold this story in more detail next week. In the meantime, if you would like a succinct briefing session for your team regarding Masscash Wholesale, and what’s in store, email Talisha, on talishaw@tradeintelligence.co.za

Getting a little granular here, but bear with us: Massmart has reported a miserable first quarter, with sales up just 0.5% year-on-year, with like-store sales actually down -1.7%. This, they complain, is in part due to the later Easter this year – although some analysts have pointed out that this would have been offset by the inclusion of Boxing Day. Elsewhere in Africa, the picture was even worse, with sales down -17.4% beyond our borders. On the upside, they say, they’re expecting to open 11 new stores in sub-Saharan Africa in the next year or so, hedging like other businesses against uncertainty back home. They expect the downgrade to make itself felt at the tills as the year unfolds. Problem is, economic growth is down elsewhere too, with the region growing at just 1.5% according to the skinny-suited Jean-Luc’s and Federica’s over at the World Bank. 

Comment: Tough times for Massmart, which is particularly exposed to the hardships of SA’s lower-end consumers. *Obviously not. That was a rhetorical question.

Some random burblings from Massmart, in the absence of anything more earthshatteringly newsworthy. You will remember that after Minister Gordhan’s Last Budget, a presentation more Old Testament than televangelist if you get our meaning, Massmart surprised all and sundry with the announcement that they had upped sales to the tune of 15.5%. “The team has been focused on the basics of retail, looking after customers and making sure we offer value for money,” says Massmart chair Kuseni Dlamini. The basics include reducing store rental fees, slashing travel costs and closing underperforming sites, bringing supply costs under tighter control, boosting the food business with new product lines and getting feet through the door with favourable pricing. All of this from a lengthy interview with Mr. D, who points to Africa as being key to the growth of the business, with Massbuild the vehicle of choice on a rapidly-urbanising continent.

Comment: After the Wakro deal, people expected fireworks from the Men in Black. What they got instead was something with less fizz and bang, but perhaps with greater longevity.

Well the punters certainly enjoyed Massmart’s impressive 15.8% increase in HEPS last week, rewarding the Men in Black with a 16% jump in the share price. This after lean years totalling almost a decade, during much of which the retailer has battled to bed down the Wakro deal and figure out the way forward in Africa. Things are looking rosier, now, to be sure, although nothing is set in stone. A recent development causing the analysts to admit muted notes of approval is the appointment of the vastly-experienced Albert Voogd, fresh from Ahold in the Netherlands, as CEO of Game. Game, which is also setting its hopes upon its new SAP POS and ERP system, which will provide a better view of profitability by product line, is key to the Massmart turnaround: it’s a popular brand north of our borders, and contains Massmart’s hopes of an expansion into traditional food retail.

Comment: Our industry is becoming positively ripe with hired guns from Europe. It’s working for Clicks, Pick n Pay and Woolies, why not Massmart too?

Bit of a bait and switch there from the Men in Black, who just the other day were touting their slow and steady approach to Africa as the strategy of their dreams. Now, according to Mr Hayward, Africa is in fact the place, with 11 new stores planned for the next two years, a space increase of 26%, and diversification into other brands and formats in the 13 countries in which they already trade. This at the results presentation, where they also mentioned that sales rose 7.7% to R91.3billion for the year through December, with like-store growth running at 5.4% against internal inflation of 6.7%. Within that, food and liquor sales rose 11.7%, while GM grew just 1.5% in the face of depressed consumer spending. Beyond our borders, different story: growth hit 11.2% in rands, while like-store growth stood at 3.1%. And with the business cutting costs where they can, margins were up nicely across the business, with Massdiscounters trading profit up a whacking 54.8%.

Comment: While Massmart have never been the business to toot their own horn as it were, they rarely get rattled either. These results speak of a business proceeding with both caution and confidence.

“If being sort of Steady Eddie is described as a criticism, I’m happy to be criticised,” says Massmart CEO Guy “Steady Eddie” Hayward. This in a Wall Street Journal story on the question of whether Walmart has lost its appetite for expansion on this great continent we call home. When Walmart acquired a majority stake in Massmart for $2.4billion in 2011, Massmart had 26 stores beyond South Africa’s borders, and was viewed as a springboard for Walmart’s launch into the World’s Biggest Untapped Consumer Market. Since then, Massmart has added just 13 stores to the haul, as commodity prices tanked and the challenges of doing business on the continent – red tape, tricky supply chains, corruption – continued to manifest themselves. Indeed, it’s been two years since Massmart has received a mention in the Walmart quarterlies. Walmart has also hit major headwinds in other developing markets, closing 115 stores in Latin America and slowing is expansion in China. Massmart, however,  are selling the slowdown in Africa as a feature, not a bug.

Comment: And who are we to doubt them.

Oho, what do we have here? A sales update from Massmart, it would seem. Kind of so-so, but in these straitened times that’s just a couple of notches down from a howling success. Sales were up 7.7% to R91.3bn in the 52 weeks to December 25, ahead of product inflation of 6.7%, but down from market expectations, and from last year’s performance (growth of 8.4% against product inflation of 3%). Masswarehouse – that’s Makro to you and I – grew fastest, at 11%, while Masscash (Cambridge, Jumbo etc.)  grew at 7.5%, although this was beaten down by internal inflation of 9.3%. Massdiscounters (Game, DionWired) came in at 5.3%, while Massbuild somewhat disappointingly trundled home at 5.6%. While there was an uptick in sales at home, they declined elsewhere, vindicating the decision to take it easy in Africa.

Comment: A business on solid footing but not somehow achieving the results of which we sense it is capable.

Back in the days when Shoprite was painting the continent red, opening African stores hand over fist and watching its share price jump 551% in a decade, Massmart investors were agitating for the Men in Black to do the same. Where Shoprite derives 17% of its revenue from beyond our borders, Massmart takes only 9%. On the one hand, however, Massmart was preoccupied first with negotiating and then bedding down the Wakro deal. On the other, they simply adopted a more wait and see approach. And as the commodity economies to the north flounder in the face of fluctuating demand and currency volatility, and the red tape shows no sign of dissipating, this look increasingly like a canny move. The chief vehicle for Massmart’s cautious expansion on the continent has been Game, which has picked up a wealth of experience it is positioned to share with the rest of the Group, notably Builders Warehouse, whose product offering is in high demand on the continent. Sales in just three African countries exceed R1billion, although there are currently concrete plans for just one store in the near future. “But that doesn’t mean we aren’t in 20 discussions," says Mr Hayward, cryptically.

Comment: As Shoprite and Massmart compete tangentially rather than head on, there is less urgency to rush the approach.

Listen carefully, it’s tricky but worth it, here goes. The High Court of Appeal in Jozi has thrown out as “opportunistic and contrived” an attempt by the SABC to wrest R7.5million in fines from Game, who it alleged had failed to pay the licenses timeously on 2,500 Samsung TVs ordered from Edusolutions in 2011. Turns out that Edusolutions had not taken delivery of the TVs before the license fees were settled, so the fine of R3,000 per set turned out not to apply. Shrewd But Virtuous Retailer 1, Crooked Mouthorgan of a Failing Regime 0.

Comment:

Plucky upstart in the supermarket food arena Massmart (that’s laying it on a bit thick – Ed.) has stuck it to the man if you will in either a Cinderella story or a David and Goliath epic, take your pick (enough. Ed.) in resisting Pick n Pay’s attempt to make Game stop trading as a supermarket at the Cape Gate shopping centre in Brackenfell. Pick n Pay had an exclusivity deal, you will recall with mall owners Hyprop, then Game cheekily started operating its Foodco offering under everyone’s noses, and all sorts of legal nastiness ensued, upon which we have reported extensively in these pages. It went all the way up to the Constitutional Court, and they delivered judgement on Friday. “As a general proposition… there is no legal duty on third parties not to infringe contractually derived exclusive rights to trade because exclusive trading rights make the competitive field uneven,” they intoned, gravely we imagine.

Comment: A victory for the forces of the free market, of which, occasionally, we thoroughly approve.

Comment: Even so diversified a business as Massmart has been unable to escape the worst effects of this thing which must not be called a recession.

In a classy event that we had the pleasure of attending, Massmart recently awarded Distell top honours at their third annual Supplier Environmental Awards. “Our aim is for our customers to walk into our stores and trust that we have carefully considered the products on our shelves, ensuring these goods are produced sustainably from responsibly-sourced inputs,” explains Group Sustainability Manager Alex Haw. “But we cannot do this alone, we need to work closely with our suppliers to ensure that the products we sell are designed and manufactured in an environmentally-thoughtful manner.” Distell has installed a new wastewater treatment plant in Stellenbosch which will also generate biogas, improved their glass bottle return and reuse programme, and commenced construction of a 2MW solar PV plant, which will be among the largest private installations in South Africa.

Comment: Excellent work there Distell, and of course Massmart, a business big both on sustainability and supplier development.

Look we’re not really supposed to do this, but everyone’s taking a bit of a breather after results season, so let’s indulge in a little DIY. Of the variety offered by Massmart, naturally, which took a little flutter on home improvement back in the year 3, and now finds itself in possession of a market-leading, R12billion, 102-store behemoth known as Builders. Builders, you will recall, trades in four formats: Builders Warehouse (‘big-box’), Express (convenience), Superstore (lower-end) and Trade Depot (contractors and tradesmen). It has grown at 11% in every year but the annus horribilis that was 2009, when it shrank by 1%. The business now trades beyond our borders, in Botswana, Mozambique and Zambia, which contribute a growing share of the haul. While growth has flattened in recent years, the chain hopes to add another 13 stores by the end of 2017, edging towards the fulfilment of founder Mark Lamberti’s dream of establishing a national hardware chain.

Comment: A living monument to the Great Man theory of retail.

The Massmart interims: total sales up 8.7% to R42.3billion, with operating profit before interest up 19.5% to R819.1million. Breaking it down, Massdiscounters (Game, Dion Wired) grew sales 7.6%. Massbuild grew 5.8%, Masscash (Cambridge, Rhino, Shield) grew a pleasing 10.3%, with Masswarehouse, the Makro-housing stalwart of the business up 9.2%. 

Comment: And there, in a nutshell, you have it.

Even as South African retailers increase their overseas footprint, the footprints of foreign CEOs in the plush carpeting of corner offices nationwide grow more numerous. Which is a hopelessly convoluted, yet intriguing way of announcing that one Albert Voogd of (where else with a name like that) the Netherlands has just been appointed CEO of Massdiscounters. Mr Voogd comes courtesy of Ahold, where he worked in various capacities and many geographies for 20 years across both food and GM. Congrats and enjoy!

Comment:

The Competition Commission is deliberating with glacial pace upon the question of exclusivity clauses in mall leases. At issue is whether SPAR, Shoprite and Pick n Pay are ganging up on Massmart and preventing the Men in Black from competing equally in certain markets – which is to say, markets enclosed by the labyrinthine walls of malls where the others have exclusivity clauses with the landlords – but the Commission is not even deciding on that issue yet. Instead, they’re deciding whether the other three are justified in their submission that the Commission should not even decide the question in the first place. The stakes are high for Massmart – with its food offering at Game, it is seeking for the first time to get into traditional, mall-bound grocery retail.

Comment: Bit of a no brainer, to be honest. Exclusivity, we would have thought, was by definition anti-competitive.

We gave you the lowdown on the Massmart interims in our update last week, but here they are again with added snap and pizzazz: sales up 8.7% to R42.3billion, with internal inflation at 5.8%. Taking it to the breakdown: Massdiscounters (Game, DionWired) up 7.6%, Masswarehouse (Makro) up 9.2%, Massbuild (Builders) up 5.8% and Masscash (Cambridge, CBW) up 10.3%. This growth, say the characteristically dissatisfied pundits, is more a result of store openings than like-store sales, in a sector which is almost universally feeling the hard, blunt edge of the economic downturn. Understanding this, punters have been tolerant, with the share price losing around 2% on the announcement of the results, but picking up another 3.1% shortly thereafter.

Comment: As solid a set of numbers as can be expected in this market.

Yet another set of results has been slapped onto our desks, which we have conveniently packaged for you right here. But we digress... Don’t speak to the Magaliessig Action Forum about Makro – or rather, do if you’re Massmart and you wish to keep the doors of dialogue open. The Forum, you see, wishes that Massmart would build their new Makro in Diepsloot rather than in the more bucolic environs of their own Fourways suburb, and hold that Massmart have not consulted with them sufficiently on the subject. Heading up the forum is one Mary Hanna, and she sounds like a firecracker. Here she is on the subject of delivery routes, one of the Forum’s concerns: “How do delivery vehicles get to the proposed site? Fly?” You get the picture. The Forum believe that Diepsloot is a more appropriate site for the store as Massmart has announced its intention to employ residents of the township.

Comment: Tricky terrain, as suitable retail property grows ever more precious in the Beloved Country.

Sorry to be the ones to tell you this, but the South African Small, Medium and Micro Enterprises (SMME) Forum has pulled out of the Massmart Development Fund’s advisory board, on the alleged grounds that it is "dysfunctional", that government participation has been negligible and that Massmart has not been forthcoming with the info needed for the board to do its job. You will recall that the board was set as an advisory structure for the R240m Massmart Development Fund, established at the behest of the Competition Appeal Court as a precondition for the merger we rather cleverly called “Wakro” back in the day. According to Massmart they have been in compliance with all requirements, including regular report-backs to the Competition Commission, and an annual report on supplier development progress and future plans.

Comment: Tricky, and we hope it’s all ironed out sharpish, and amicable relations resumed.

“South Africa is a terrific market, and it gives you something to work with,” said Walmart CEO Doug McMillon at last week’s Consumer Goods Forum’s Global Summit, “But…” But? BUT?! But what? Calm down to a panic okes. “But our aspirations are for the Sub-Saharan African region,” he concluded. “You can put me in the optimistic group.” With, presumably, Pollyanna, SpongeBob and Shoprite. Oh thank goodness.

Comment:

We do not wish to add the fuel of hearsay to the fire of speculation that Walmart may be looking to divest itself of its interest in Massmart. But likewise, we would be irresponsible not to inform you that this speculation is ongoing, in such August Publications as The Times no less.

Comment:

What is it with Massmart and their 21 weeks? In the 21 weeks since their last results, they tell us, they have grown sales 9% since the same period last year. The big performer in the group was Masscash Retail, which grew 21.4%, or 13.3% excluding new stores. Food and liquor were the star categories, coming through with like-for-like store sales of 11.5%, while general merchandise and home improvement, not so much, growing at just 0.5%. According to CEO Guy Hayward, our economy is in a “classic defensive cycle” with discretionary spending constrained as punters come to terms with food inflation running at 11.3% for reasons already documented ad nauseam. This quite naturally has put the squeeze on the Massbuild division.

Comment: Refreshing honesty as always from the Men in Black.

More on that rather sensational bit of non-news upon which we reported last week, that a certain analyst saw the signs of an early withdrawal from South Africa by Walmart. This week, the other analysts piled on, with all the social cohesion of a pack of hyenas at the last baby wildebeest carcass this side of the Serengeti River. Never happen, they said. While certainly, Massmart’s performances has not been all that, it has been affected by a range of external factors – the commodity fall-off, the Rand, the shift in wholesale cash & carry trading models – and now would be exactly the time to hold rather than fold. And Africa is a long game for Walmart, one in its early stages. Finally, there’s the level of investment: Walmart has put both blood and treasure into “Walmartising” Massmart, into driving the principles of joint business planning, focusing on back-office and operational efficiencies, ensuring Group-wide consistent compliance, and driving its “Save Money. Live Better.” promise to its shoppers.  They’ll stick around to see a return on this investment.

Comment: But hey, that’s not us, that’s the analysts, who like sports journalists are mysteriously never called to account for the accuracy of their predictions whether dire or soothing.

Analyst Shamil Ismail enjoyed his time in the sun last week after speculating that Walmart might be ready to pull the plug on its investment in Massmart in 2018 should the retailer not start turning in a more stellar performance. In part, his view is based on the fact that Walmart has exited underperforming geographies within nine years of the initial investment, pointing to South Korea and Germany as examples, and mentioning the announced closure of 269 stores both in the US and elsewhere. It’s the view of Trade Intelligence, however, that this analysis misses the full picture. For example, a number of recent Walmart store closures were due to format issues - 102 of the closed US stores were smaller format Walmart Express stores, which has not worked for the Walmart supply chain.  And while the South American closures have come as a result of economic challenges in the region and a highly competitive market (which will sound familiar to South African retailers), Ismail fails to mention that 60 of the closures are in Brazil and 55 elsewhere in Latin America, making up only a fraction of Walmart’s presence in the region. Ismail also overstates Massmart’s current woes: Massmart is one of the few retailers that are delivering real like for like growth, and achieving returns, by m², higher than those of its competitors.

Comment: And closing underperforming stores is not necessarily a signal of retreat, but a rational move for a successful retailer.

Worth reminding our readers, we thought, that when it comes to the disposal of your AAA batteries, tired old HP printers and Nokia 6310’s, Makro’s your place. 8 years on, their e-waste recycling service is still going strong, and more popular than ever before, with 140tonnes of the stuff disposed of annually. Nice one.

Comment:

Whither Massmart, eh? The question on everybody’s lips. Since the Walmart deal, the Men in Black have struggled a bit, as Africa, with currencies shaky and commodities down, has failed to deliver immediately on the promise, and as ill economic winds buffet the local consumer. Their 2015 results were not all that, you may recall. But they’ve stuck to their guns in key areas, and this should make for steady improvement in the medium to long term. One of these areas is sustainability, as embodied by the new Makro, the first to make use of renewable energy, in Carnival Mall, Jozi, where solar panels will produce 1 million kWhs of electricity every year, only a little of which will be consumed by the LED bulbs which make up 100% of the store floor lighting. Daylight will be harvested, and refrigeration will be provided by high-performance CO₂ plants.

Comment: Nice work there, Massmart, which will go some way to ensuring a sustainable future, either way you look at it.

As the current ambit of results winds down (or does it? Ed.), we turn our thoughts now to Massmart, ably reported upon by our analysts in last week’s update and summarised somewhat less responsibly right here: Turnover up 8.4% to R84.73bn, with operating profit up 9.4% to R2.15bn and margin holding steady at 2.5%. Makro was the big winner in the Group, with real turnover up 6.4% on internal inflation of 3.4%. Massbuild grew impressively, at 11% overall, although like-store growth was muted at 7.4%. Massdiscounters, under which banner Game falls, showed promise, with the fresh food offering now in 84 stores and counting, and trading profit up 30.3% off an admittedly low base. Massmart are being expectedly glum about it all. “We anticipate further negative pressures, including poor economic growth, higher inflation from the weaker rand, and higher interest rates,” said CEO Guy Hayward.

Comment: Tough times, especially for those businesses with this degree of exposure to South Africa’s beleaguered working classes.

Cementing, if you will, their position in Zambia is Massmart, which launched its first Builders Warehouse in Lusaka this week. And word on the street is it was a pretty canny move, with Zambia poised for commodities-fuelled growth and buildings going up all over town. The good news for Zambia is (a) more materials with which to build, and (b) another engine for economic growth, which relies perhaps a little too heavily on those aforementioned commodities, and which could do with a little more retail to keep it chugging healthily along through the downtimes. The downside for Massmart is the relative weakness of the kwacha, which has recently lost 50% against the dollar. This notwithstanding, another Builders is planned in the next 18 months elsewhere, joining the one just opened and the Game Massmart already have in place in Lusaka

Comment: The march of SA businesses into Africa is a book whose prologue has barely been written.

A mixed set of results from the Men in Black this half-year: total sales up 9.1% to R38.9billion, to be sure, but operating profit down 1.4% to R685.2million, hit hard by losses at Masscash (Jumbo, Rhino, Shield and Cambridge) where trading profit was down 34.5%. Makro held steady, however, with sales up 11.4% and trading profit up 13.5%, while Massbuild grew sales a whopping 16.3% and trading profit a positively Brobdingnagian 31%, thank you men (and indeed women) in bakkies. According to CEO Guy Hayward, who as a one-time CFO likes these sort of things, they are happy with their “effective margin management and robust expense control”. 

Comment: Massmart’s exposure at the embattled lower end of the market have hurt them this time around, and exposed just how badly chronic unemployment and flat economic growth are for the real people.

We recall Grant Pattison, as a fresh-faced Massmart CEO, musing publicly at a CGCSA conference that for the sake of the planet, oil should maybe hit $1,000 a barrel – this at a time when the commodity was already pricy and driving inflation all over the show. Now that thoughtful man is putting his considerable talent where his mouth is, as CEO of NRG Energy, the New York Stock Exchange-listed company that provides diverse conventional, distributed and renewable energy solutions in the US, and is now operating on these shores.

Comment:

Some interims from the Men in Black, and as fine a set as you could hope to clap eyes upon in this blighted economy: total sales up 9% to ZAR38.9billion, with like store sales up a handsome 6.8% against product inflation of 3.7%. Massbuild (16.3%) and Makro (10.9%) the top performers, with Masscash lagging sadly at 4.8%.

Comment:

It is the ambition of the Gauteng Government to “convert townships from being places of consumption to becoming centres of production.” One of the instruments of this historic programme is, as you know, our very own Massmart, which will be providing 60% of stock to spazas in a pilot six townships. These spazas, in addition to going about the business of bringing groceries to where they’re needed, will be providing the necessary supplies for the feeding schemes of a total of 2,000 schools in the province. The challenge is of course keeping track of these retailers, and ensuring that only legal traders are benefiting from the largesse, something which the sometimes controversial Operational Fiela has been targeting. 

Comment: Alexandra Township, a centre of resistance to apartheid, is the beneficiary of this project under which many of these retailers fall. It couldn’t happen to a nicer place.

Comment: We look forward to seeing how this one spins out – and what the response will be from the competition.

The details are a little scanty on this one, but it has the makings of a biggie, so we’ll share with you what we know: Gauteng Province and Massmart will be partnering to establish 500 retail stores in the province’s townships over we’re not told what period. That’s no less than a R650mealion investment to be injected into the townships of Katlehong, Attridgeville, Sharpeville, Randfontein, Alexandra and Khutsong as a pilot project, providing township entrepreneurs the opportunity to own a little slice of the independent trade pie. And with more than 1,000 jobs for the taking thanks to the initiative, the township folk are smiling all round, no doubt.

Comment: Commendable stuff from the Men in Black and one of our provincial governments. Let’s hope this one goes viral, and not like the flu kind doing the rounds at the moment.

As a condition of the Walmart takeover back in the heady days of 2010, an eager Massmart agreed to make available a fund of R100million for the development of the smaller supplier. Straight off the bat, Massmart put a fair whack of this into developing and then buying stuff from smaller farmers. Now, five years down the line, they’re shifting their focus a touch, away from agriculture and into manufacturing. This very FY, in fact, they will be bring no fewer than eight (8) suppliers on board, in keeping with the government’s requirement that no less than 30% of the value chain comprise SMEs. Currently, Massmart works with 139 farmers and 24 manufacturers in all provinces except the Northern Cape. Now they are changing their approach from capacity building over a wide base to supporting the already successful businesses which stock their shelves.

Comment: Enlightened pragmatism, as we’re almost sure our old history teacher might have called it.

Comment: Torrid times. Good luck, those Men in Black.

That Massmart trading update you didn't even know you wanted, but now that it’s here, you’re… what? Oh, sorry. Like store sales up 7.4% for the totally random first 20 weeks of the FY we have no choice but to call ’15, much of this, rather thrillingly, due to growth in market share. Either that or the discovery in a hidden valley of the Magaliesberg, of a lost tribe of low-to-middle LSM consumers with a mysterious new source of disposable income. Total sales growth for the period was 9.5%, which under the circs is at least 20 weeks’ worth of respectable. Massbuild, with total sales growth of 15.5% and Makro at 11.6% were the star performers, while Masscash Wholesale at 2.8% was emphatically not. At the AGM, showing himself to be no pushover, new CEO Guy Haywood took a thinly veiled jab at “The Others”, over the mall exclusivity issue: “Some major food retailers continue to defend lease exclusivities, thereby inhibiting competition,” he cheekily said.

Comment: Throwdown! As Massmart advance further into grocery territory, expect more of the same.

In recent years, Massdiscounters – the division which includes Game and DionWired – had become something of a drag on the well-oiled Massmart system, to be glossed over at results time and hurriedly pushed under the coffee table when visitors came in from, oh, Bentonville, say. No more: as you may recall, divisional sales for the year to December grew 8.1%, much of that, we are told, from the fresh offering sold under its Foodco store-within-a-store brand. Foodco has since been scrapped in favour of Walmart’s Marketside brand under which the total food drive will now fall, signalling Massmart’s ambition to take on the other majors where it hurts. The idea with food is not so much to attract new customers, but to convert existing ones, giving them a reason to visit the stores on a more regular basis.

Comment: With Walmart’s buying power and Massmart’s established distribution capability, “a new power is rising,” as Saruman the White might have said.

Sometimes, you just have to say what the heck. Or so, we assume, is the Massmart thinking vis-à-vis their ambition to open a store in Kenya. They were hoping to do it either on the cheap, or the down-low, or both, by acquiring a complaisant local outfit and getting in that way. But, as documented in these pages, target of choice Naivas became involved in an ugly intramural spat over who actually owned the business, so Massmart, twirling their finger around their ear and making surreptitious “cuckoo!” sounds, have decided to go it alone. They will be opening their first store – a Game? – by the end of May in Nairobi’s new Garden City mall, located along Thika Highway, a route much prized for its proximity to the gated communities where people with money prefer to congregate. Once in-country, they will find themselves up against a pack of canny local crews, including Nakumatt, Tuskys, Uchumi and Naivas itself, licking its wounds and looking to do some damage.

Comment: It’s your problem-free, philosophy….

Massmart is using its Builders Warehouse stores to showcase its increasing use of green energy to do the right thing by dear old mother Earth while reducing costs in the business. A case in point: Builders Warehouse Rivonia, which has reduced its energy use by around 22% to 89 kWh/m2 since 2010. How’d they do that? you ask. Through a devilishly cunning Building Management System, that’s how, which “harvests” daylight in-store, switching on the LEDs (themselves a handy little energy saver) only when the gloom in the aisles becomes Stygian. This in turn reduces the heat in the building, which is further cooled by an evaporative system rather than a conventional one. And while other Builders outlets harvest rainwater in tanks, saving 7,000kl per year of municipal supply, Rivonia has the good fortune to be built on top of an aquifer, with its water needs supplied by borehole. 

Comment: Significant effort, major savings. We live in promising new times, in some respects.

Pick n Pay and Massmart have, apparently buried the hatchet vis-à-vis exclusivity clauses in malls, with the former averring, if that's the word, that while exclusivity clauses with landlords were somehow desirable in the past, they might not be so in future, who knows? Last year, you will recall, Massmart was interdicted by the High Court to prevent it from interfering with any contractual obligations of exclusivity there might be between Pick n Pay and mall owners, specifically as it related to the opening of a Foodco department in a CapeGate Game store. This gave rise to rumblings from concerned groups that such clauses were anti-competitive. 

Comment: Which they are. Hence, no doubt, the conciliatory tone now.

After their sad decline in profitability in the annus horribilis that was the 2014 FY, we are watching Massmart with more than the usual interest, and so we turn to their 13-week update: like-store sales were up 7.4% compared with 7.1% for the same period last year, a scenario they foresee as ongoing for the short term, and that’s about all they’re revealing right now. They have mentioned that the low oil prices are not helping their African markets, notably Nigeria, and certain gimlet-eyed analysts have remarked that economic woes back in the Republic are a downer for their high-volume, low-price model. 

Comment: Challenging times for all retailers, including those with a big American brother.

Walmart shareholders: brace yourself for some heavy spending in the next 18-24, as the Bentonville Behemoth invests in inventory management, instore pick-up infrastructure for online orders, pricing on its private label lines and salary hikes for its previously-beleaguered workforce. All of this, we are told by Doug McMillon who has been driving the bus this twelvemonth past, in order to pick up market share and improve sales, the big drivers for its turnaround plan. Thus far, the punters have not been notably enthusiastic about the spending, with the share declining 3.2% on the day the news broke about the wage increases. Analysts seem more sanguine about it however, believing that investments in wages and training are going to put Walmart stores on a better footing in the long run. 

Comment: You think it’s easy, turning round an eighteen wheeler? Just try it.

Massmart’s click and collect system of internet shopping will soon kick into operation. The idea, you may recall, was that you would order your goodies online – a shrink of Sunlight, say, and an inexpensive colour laser jet printer – and that you would then be able to pick them up at a Sasol garage of your choice, all the while being apprised via SMS of their progress through the supply chain. When the order is ready for collection, a final SMS will inform you – in a thrillingly Mission Impossible fashion – of the secret code you will require to access your purchase, should you choose to accept it. Unfortunately, Massmart’s partner in the endeavour, UTI, chose to have the lockers locally manufactured, and this involved a bit of to-toing and froing with “overseas experts” to ensure compliance with the highest international standards. The lockers will shortly go into production, and phase 1 should launch before June. 

Comment: Uh, or you could just drop it off for us, there’s a good chap…

Sometimes, the story is the story. In this case, it’s a breathless little report by Reuters on the new Massmart CFO, Johannes van Lierop – ex of Bharti Airtel Africa - who replaces Ilan Zwarenstein. The move has been on the cards since August, but Reuters are getting all hot under the collar about it, pointing out that it’s the third change in a year – after the resignation of Mark Lamberti as Chair and the ascension of Guy Hayward when young Mr Pattison left as CEO. Both of these moves, you may recall, were conducted smoothly, timeously, and with succession-planning in place that appeared to span the better part of a decade. Reuters then go on to tut about the difficulties Massmart might be having securing primo retail space elsewhere in Africa, as if this has any bearing, then mentions the stiff competition it faces back home “as it rolls out its grocery business to take on industry leaders Shoprite Holdings and Pick n Pay Stores”, as if that was news. 

Comment: No biggie then. But journalists do get paid by the word, and the rent has to come from somewhere.

Oh dear. Massmart’s annuals, out last week and faithfully documented in a special release to our many valued clients in the consumer goods industry, were not all that. While turnover was up 10.4% to 78.2billions of ront for the year which ended with December, net profit declined 8.2% to R1.13bn, and headline earnings per share, which are generally a handy veil for any number of blemishes on the P&L, and are thus held up by businesses as The One True Measure of Profitability, were down 10.2%. Why? you cry, weeping into your portfolio. Well, being in bed with the dollar doesn’t help, when the rand’s as weak as it is. And then there was the interest paid on property acquisitions over the past couple years. Not to mention the decline in the fortunes of the dear old South African consumer, and similar travails in some of the oil-dependent economies to the north. But next year will be better, we are assured. Game’s food programme is on track, with food sales up 19% to R3.2billion, and accounting for 18% of the total. And a store opening binge is on the cards for Africa, where South African businesses are increasingly going to offset the dire trading conditions at home. 

Comment: The reinvention of Massmart as a grocery giant is a job of years rather than months. We look forward to next year’s results with interest.

The Men in Black are putting a fair whack of their money where their mouth is when it comes to supplier empowerment. To pick a case totally at random, let us consider that of Biscotto Biscuits, beneficiary of a R5million loan from Absa, for 50% of which Massmart stood guarantor. A further grant of R1.45million was provided for upgrades to the factory which proprietor Bheki Zondo acquired from the Valle family last year, and to ensure compliance with food safety standards. Biscotti now supplies to Pick n Pay, Makro and SAA inter alia, and is in further discussions with Massmart to bring Game and Cambridge onboard. And one day, maybe, Walmart partner Asda may have a little nibble too. Zondo is an alumnus of the supplier development programme Massmart runs with the Gordon Institute of Business Science. 

Comment: Commendable stuff. Not to mention a pragmatic way to widen the supplier pool and keep ‘em honest…

Massmart have mentioned – more details to follow – that sales were up 10.4% to 78.2 billion ront in the 52 weeks to Dec. 28. Like store sales were up 7.5%, and Massbuild, at 14.6%, was a notable contributor. We can’t wait to get more of the skinny in the days to come.

Comment:

“I think it's going to be another very, very tough year for retailers,” – not us, Chris Gilmour, of Absa Wealth and Investment Management, no less, and he goes on to say that most retailers are “priced for perfection,” whatever that may mean, although (and he gets quite pointed here) Pick n Pay isn’t. While he concedes that the business under Mr Brasher is doing everything right, “clawing its way back is going to be an exceptionally long and difficult process.” SPAR, in the meantime, from their secret lair in the subtropical paradise of Pinetown, KZN, have announced diabolical plans to open not one but 35 new stores in the year we have no choice but to call 2015. They will also renovate 180 stores, and open 45 TOPSes, liquor being a growth industry now for oh, about 8,700 years. Shoprite, now – not much there except are they going to keep all those Wetherly’s open that they bought on the Ellerines fire sale? The Competition Comish approved the deal only on the grounds that no jobs would be lost. Something else that we might have missed in the flurry of last minute trading that was the holiday season was that Massmart are launching a click and collect service by which online Makro punters can buy their groceries online then pick them up from a sturdy locker conveniently located at a Sasol near you, rather than having to go through the mission of schlepping out to the nearest Makro in its windy acres of carpark. And from Woolworths? Not much, except a breezy two line press release, circa mid-December, to the effect that they’d had a productive meeting with BDS re the protests in Woolworths stores. On the wholesale front, some pretty exciting news, and close to home, also: Jad Perreira, CEO and founder of Voluntary trading group Unitrade Management Services will be speaking at the Trade Intelligence Independent Trade Forum, kicking off on 19 February in Jozi. If you haven’t got your tickets yet, there is one very compelling reason to do so.

Comment:

Is disingenuous a word? We think it is, meaning something like “deliberately and knowingly talking out of the top of your hat, while affecting an air of innocence.” And this, it would seem is what Massmart have been doing when they say that they genuinely thought, that having gone into food, they would be competing in a spirit of good-natured fun with the other retailers, who would scrub the exclusivity deals they had with cringing mall owners just in order to give the new chap a chance and level the old playing field a bit. Don't take it from us though, here’s Massmart’s senior counsel, the Hon. Michael Spivey: “WalMart did not see these lease exclusivities coming. We believed that once the merger was complete we would compete fairly, openly and aggressively.” And that matron would be round to tuck you in every night, no doubt. In the interests of fair and open competition, Massmart haven’t cornered the market on disingenuousness, oh no. Mr James Wellwood Basson (Shoprite), take it away, sir: “There’s a reason for that exclusivity, because otherwise we won’t go into some of the shopping centers with developers and the centers won’t take off. Somebody has to take the risk.”

Comment: We’re feeling a little queasy. Must be all the choccies Mummy put in our tuck box.

Comparable sales were up 7.3% for the 44 weeks through November 2 over at Massmart, compared with 4.3% over a similar, 46-week period last year. The big performer during the period was Massbuild, up 8.9%. Just thought you’d want to know. 

Comment:

Massmart are getting all up in everyone’s grill, filing formal complaints at the Competition Commission against Pick n Pay, Shoprite and SPAR for what they (the MIB) consider to be “intuitively anti-competitive” exclusive lease agreements, which, they feel, prevent them from competing fairly against the Big Boys in Food. They refer specifically, of course, to Game, where sales and sales density  growth in food and GM alike have been higher in stores with the Foodco offering. This in the face of an interdict obtained by Pick n Pay to prevent Game from opening a Foodco at the CapeGate and Liberty Midlands Malls, and this from the press: “Apparently one of the national chains has sent letters to 13 malls, warning landlords to honour the agreements.” Ooooooooh!

Comment: Conceivably, of course, brands like Cambridge (and perhaps one day Oxford?) might also run into headwinds at malls where the big fellers have set up shop. In which case a Massmart victory at the comish would be all the more significant.

Sadly, Game will not be able to open a Foodco store in the CapeGate Shopping Centre in Brackenfell, after a High Court interdict was issued preventing the Men in Black from interfering with the contractual relationship between landlord’s Hyprop and fellow tenants Pick n Pay. An interim interdict application, you may remember, was lodged by Checkers after Hyprop advised it, but not Pick n Pay, of Game’s intention to go into food. That interdict was discharged in April by agreement between Masstores and Checkers, resulting in Pick n Pay lodging the application for this one. Member of the SA Retail Association have in the meantime asked the Competition Commission for clarity regarding the possibly anticompetitive nature of exclusivity clauses between the owners of malls and their tenants. 

Comment: Thorny. Still, it’s nice to see the big chaps having it out in court for a change.

Next month, Massmart will launch its attempt on the hallowed (and cavernous) niches Pick n Pay and Shoprite have claimed for themselves in the nation’s malls as it files a complaint against the dastardly duo who, the Men in Black argue, have used exclusivity provisions in their leases to prevent Game from rolling out its Foodco offering. This, argues dashing young Flight Lieutenant Hayward, is “instinctively” anti-competitive. Last year, Shoprite succeeded in getting an interim interdict which banned Game from selling particular food products in its CapeGate store – at a time when Foodco was competing with Shoprite stores in about 30 other locations. Pick n Pay launched similar actions this year at CapeGate and the Liberty Midlands Mall. 

Comment: Fair point, that dashing young CEO. If we find the idea of a free market so very appealing we should pursue that freedom to its logical conclusion, surely?

As we informed you last week, Massmart’s results were not all that, with sales up 10% but profit declining to the mournful tune of 5.7%. “How can this be?” you cry. “What was once so young, so vital…” In a word, Game, and durable goods generally. Massmart are blaming the mining strikes, but whatever the cause, SA’s lower-to-middle income punters are battling right now, and sales have slowed on anything that can’t be eaten or drunk all across the industry. Massmart, and Game in particular, is unusually reliant on durable goods to earn its crust, and comparable sales over there grew only 0.4% for the FY, compared with a Group-wide total of 7.1%. In other news from the Massmart results, the Men in Black are investing more heavily in their property portfolio, upping their stake by 11.4% YOY and buying some significant plots, including, wait for it, their own head office premises in Sunninghill.

Comment: The fixing of Game will, we predict, be one of the more interesting stories of the next couple of years.

While gloom is expected from Massmart this Thursday, with The Men in Black warning us of declining profits and stressed consumers, and the share price following suit, there is a little glimmer at the edge of the clouds, and its name is Massbuild. Massbuild, Massmart’s building materials and DIY division, is going great guns with its low-cost Builder’s Superstores, which are taking on Cashbuild and SPAR’s Build it. Massmart launched with five Builders’ses last year and is planning another three. The success of the format, Massmart believes, is due in part to the wave of renovations undertaken by lower-end consumers who cannot afford to trade up but want to improve the houses they already own, and the owners of a new generation of RDP houses.

Comment: The bakkie brigade and their buck have long been a source of stiff competition among the businesses in question.

First up, a story that reminds us of the dust clouds we used to watch forming out on the field during big break when the boys had a matter or two to settle between them. Pick n Pay, you see, are stepping up their efforts to stop Massmart and specifically, Foodco, from expanding their food offering across SA, which is causing mall owners to go crying to the Competition Commission. The Big Blue is calling for the malls to enforce their exclusivity clauses, clauses that have long been a feature of the SA retail market and that they believe have been breached. While Massmart and the SA Reit Association, representing the property sector, believe that such clauses are to the detriment of Mr Soap who just wants to put food on his family’s table.

Comment: And so we wait upon the Comish.

Massmart held their AGM last Friday night, and at that lively knees-up, revealed to assembled punters that sales were up 9% in the first 21 weeks of the FY we are pleased to call ’15, with like-store sales up 7% and internal inflation bubbling along at a manageable 4.5%. Growth at Makro was up 12.2%, with 14.9% at Massbuild, 8.2% at Masscash and Massdiscounters 6.3%.  Food and liquor up 8.5% on a comparable basis, general merchandise 3.6%. Being Massmart, Cassandra to the industry (look it up, look it up), they warned that the dear old SA punter was in a hell of a shape and that they were not overly optimistic that this relatively happy state of affairs could continue much longer, with rising inflation, high consumer debt and the catastrophic effects of the mining strike coming into play.

Comment: Nice one, the men in black. A strong and polished set of reigns Mr Hayward has picked up then.

Massmart has been temporarily prevented from opening a Foodco in its Midlands Mall Game by Pick n Pay until the latter’s contractual arrangements with mall-owner Liberty have been clarified to everyone’s satisfaction. Another indicator that its difficulties aside, the big boys are taking Foodco seriously as a threat to their market share.

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Apropos of not too much at all, ANC mouthpiece The New Age believes that with the exit of Grant Pattison from the corner office and Mark Lamberti from the Chair, Massmart is poised for a new age (ahem) of African adventurism “untainted by the past,” having lagged the likes of Shoprite on that opportunity-laden continent for some time although in fairness outstripping the rest. Be this as it may, markets and commentators alike have noted with approval the ascension of Guy Hayward into the top spot and Kuseni Dlamini into the chair. Hayward (who might henceforth be known in these pages as The Gentleman Scholar, or perhaps even The Honourable Schoolboy, we’ll see), has a passel of financial and retail experience under his belt (a size 32 we are reliably told), having held down responsible jobs at Malbak and CNA Gallo and at Goldman Sachs in London before joining The Men in Black as group financial executive in 2000. He has, we have observed, a polite but steely way with the analysts, and that goes a long way.

Comment: Sometimes you don’t know what you’ve got till it’s gone. And sometimes, you don’t know what else you have got till the original thing went. Or something.

Well damn it all to bleeding heck. Boy wonder and Massmart CEO Grant Pattison, a favourite of ours these how many years (It’s seven. Ed) has upped and thrown in the towel. “Why?” you howl, as we did, “Why?” The theories are legion. The man himself says that having reached the ripe age of 43 it’s time for a change and if his remaining years as a young executive are to be productive ones, that change should be now. Others hint that the Walmart merger has not been without its frustrations and pressures, and that family time beckons. And there has even been word (hard to credit) that Mr P has a future mapped out in the food service industry. One-time rival for the top spot, COO Guy Hayward, will be taking over, effective 1 June, an announcement the markets have greeted with some relief.

Comment: Whatever the future may hold it would be hard to fault Mr Pattison’s tenure at Massmart, where taking over from the brilliant Mark Lamberti he shepherded his charge profitably into food, sustainability, Africa and a partnership with the biggest retailer in the world.

And in other news, The Men in Black have announced that they will be opening their first two stores in Angola in 2015, with another couple to come in 2017. And as readers of these pages will know, they’ve broken ground on their first Kenyan store after failing in their attempt to acquire a stake in (Nakumatt) there.

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Cambridge Foods, it seems, has been a tidy little earner for The Men in Black since they purchased it just five short summers ago from Durban boytjie Brett Latimer, who started it in the 1990s (and who is now busily building his Oxford empire, no doubt with a future transaction in mind). Massmart increased the Cambridge footprint with the acquisition and rebranding of a range of similar businesses (Savemoor Thembisa, the Rhino Group) and now run 47 of the cheerfully-liveried emporia at bustling commuter hubs and other suitable locations nationwide. But they’re not stopping there; oh, no: they’re targeting 100 by the end of 2017. On the downside, Masscash, the division in which Cambridge is housed, has seen tough trading conditions of late, growing just 3.8% comparably in the FY just ended, as its LSM 2–7 base feels the chill winds of an ailing economy.

Comment: We are watching the continued evolution of Massmart with great interest.

Continuing their charge into territory occupied by the more traditional food giants is Massmart, this time wielding like a mighty sword is Makro’s new online shopping portal, currently beta testing but fully operational and available for a squizz right here. The cognoscenti inform us that it’s super-easy to navigate. While food and groceries are not functional yet, they look pretty much good to go, and seem to focus on the bulk quantities so handy for the harried householder come month end, at the attractive prices one has come to expect from the Men in Black.

Comment: With SA’s relatively small online shopping market and the challenges of distributing small orders to multiple addresses, this might prove the best model yet for internet groceries. We look forward to the hard launch, if that’s what it’s called.

As variously reported in the Ghanaian press, Game stores in that plucky West African economy will soon be rebranded as Massmart, Mass-Mart or Mass Mart. One wonders whether this is a test for a wider rebranding to bring things more closely in line with the Walmart mother-brand, or to reforge, so to speak, one of the weaker links in the Massmart chain. Perhaps both.

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Sometimes, a slow news week means you can report the really good stuff. Like this local programme Massdiscounters have got going in the Northern Cape, where they are offering 12 month workplace experience opportunities to unemployed matriculants sponsored by the Wholesale and Retail Seta. The successful applicants will work towards their National Certificate: Wholesale and Retail Operations, an NQF 2 qualification, and will spend their year in a Game store in either Upington or Kathu. As a quick trundle through the sustainability pages of their very smart website will reveal, this initiative is typical of Massmart’s Grassroots approach to community engagement, from their Direct Farm programme to their Local Supplier advocacy.

Comment: Nice one, the Men in Black. Heartfelt, relevant and convincing.

Massmart has begun in earnest its attempt to challenge the relentless advance of Shoprite in West Africa, with the opening of the first store of an entirely new supermarket chain in Lagos, Nigeria. Value Mart, which has been designed specifically for the Nigerian and West Africa markets, is a smaller-format food retailer which will be sensitive to the different consumer expectations and preferences across the various markets. Should the pilot prove successful, the idea is to roll out ten stores in the region over the next two years. Other plans for those great continents include new stores for Namibia and Mozambique, the rollout of Builder’s Warehouse in Zambia and Mozambique, and of course, 22 new stores right here at home. Massmart are talking up their prospects for profitable growth on the back of Walmart’s supply chain and operational expertise, after years of being responsibly downbeat at a time of massive change in the business.

Comment: Small and nimble. We like it. Float like a butterfly, that retail behemoth.

Solid set of numbers from the Men in Black: group sales up 9.8% to R72.3billion for the 53 weeks to the end of December 2013, with operating profit up a hefty 26%. On a more cautionary note, trading profit declined by 0.1%, and 52-week comparable sales grew at just 3.8%, although the outlook for the first nine weeks of the new financial year is a little more sunny with comparable sales up 7.7% off a 9.5% increase in total sales. Makro and Massbuild continue to please while the Massdiscounters division – i.e. Game, is still causing Mr Pattison sleepless nights by his own admission. Although he’s sanguine about its prospects and believes that the continued expansion of Foodco – now in 48 Game stores – should increase footfall and lead the punters on to higher-margin merchandise which they currently aren’t coming in for. Generally, Massmart believe that with food now launched, operations under the new Walmart regime bedded down and Africa now entered, things are going to start looking up.

Comment: And the punters who flocked to the share after the release of the results seem to agree.

Massbuild, in partnership with Standard bank, is extending a R20million line of credit to ten pre-approved BEE construction businesses which, without such a facility, might not otherwise be able to go after the big government or community upliftment contracts in which they specialize, from low-cost housing to libraries and hospitals. They’ll also be offering technical and operational assistance through Tusk Construction Support Services which will give them advice on inter alia, cash flow and supply chain management. And once this endeavour is bedded down, the Men in Black intend to boost the funding and extend the offer to more contractors. This move will not only extend the customer base, a sector of which generally buys around 65% of its supplies on tick, but also develop the enterprises in question. 

Comment: While doing the right thing by the community and securing for themselves a tidy share of the government buck. Win, win, win, you’d have to say.

After gazing at their shoes modestly these how many months and scuffing them about diffidently in the dirt, the Men in Black have reported that sales for the 53 weeks to December 2013 were pleasingly up on the 52 weeks to December 2012, with sales up 7.5% and like-for-like store sales up 3.8% for the comparable period. Makro stormed in at 14.1%, with Massbuild up 11.9% and Massdiscounters and Masscash lagging somewhat at 8.6% and 6.5% respectively – the latter figure arguing that once again, the bleak economic winds have been the hardest on the poor. On this happy note, the share (which has tanked 30% in six months) ticked up by a no-doubt-welcome 4.5%.

Comment: Good news, but nothing yet that would point toward a strong recovery in Massmart’s middle-to-lower income heartland.

Watch out Cashbuild, Massmart are hammering a big old stake into the dusty earth of Gauteng, launching its new Builders Superstore brand in two locations, Tembisa and Evaton. The format is aimed at competing aggressively for the lower-income homebuilder’s and home improver’s buck, specifically in the areas of price, assortment, in-stock, customer experience and convenience, and differentiating itself from the other Massbuild brands with a range of fit-for-purpose quality products. The rollout is also going to be on the aggro side: five test stores in Gauteng townships in the next 12 months, then another five the year after that, reaching into Limpopo, the North West and Mpumalanga, then 60-plus nationally within five years.

Comment: A business which taps into the DIY spirit of SA’s poorest citizens seems like a worthwhile way to go, commercially and socially.

The Men in Black have walked away from the Naivas deal in Kenya, driven hence by the nasty bickering sparked in the owning family by their approach. This, we are told, is far from uncommon in Kenya: an unnamed Nairobi investment banker has disclosed that each of the last six of her deals involving such businesses have collapsed because the family members could not agree on who owned what. There’s also the horrible price small supermarket owners are asking for their businesses, encouraged by international demand as the big boys all scramble to get footprint on The World’s Most Promising Continent™. Naivas, you will remember, owns 30 supers across Kenya, and plans another 30 in the next three years, expanding elsewhere in East Africa. And tellingly, they plan to bring more non-family members onto the board.

Comment: The rise of formal retail in Kenya makes for a thrilling yarn, one which we are aching to tell in our inimitable Haggardesque manner.

Last week we reported on Woolworths’ speedy withdrawal from the chaotic juggernaut of Sub-Saharan Africa that is Nigeria. Now Massmart are issuing sternly-worded exhortations to the effect that it needs to get its act together. Ex-CGCSA CEO and current Africa Food Retail and Supplier Development Executive for Massmart Mncane Mthunzi, speaking at last week’s somewhat grandiosely-tilted World Retail Congress pulled no punches, speaking out against the lack of political will, which sees a lack of delivery in the basics like electricity and an abundance of the stuff you don’t want, like corruption. This notwithstanding (ahem) Massmart has been persuaded not to reconsider its investment in Nigeria, in part by the efforts of a delegation of politicians who made their way to Walmart’s underground operations centre in Bentonville, Arkansas, to persuade The Big Guy to stay the course in their promising, but frankly loony, country.

Comment: That’s Nigeria, of course, not Arkansas…

"Massmart knows very little about clothing,” says Massmart’s Mr Pattison, who is indeed generally solidly turned out in a dependable black suit. But all this could change, he says, with help from partners Walmart (see also “The People of Walmart”) and Asda. With their help in effectively identifying a compelling clothing proposition from a pre-selected range, “we could roll out a very respectable clothing store," he says. To prove this, they’ve established, if that’s the word, three pop-up shops, at Cresta in Joburg, Galleria in ‘Toti and at CapeGate in Cape Town, under Asda’s George brand. George sells duds which are positioned somewhere between Mr P and Woolies on the quality/cost spectrum, and the pop-up stores are designed to test the waters and start the laborious process of building something the fashion people call a ‘brand’.

Comment: The tentacular growth of the Walmart/Massmart empire continues, interdicts and exclusivity clauses notwithstanding…

In a startling departure from the culture of cordial dislike and snide aside which characterizes the competition between our large retailers, Shoprite have (in effect) taken Massmart to court, lodging an urgent interdict to challenging the legality of a Game moving into the CapeGate mall. The Big Red One, you see, has an agreement with owner Hyprop Investments which prevents any other supermarkets (except Pick n Pay and Woolies) from operating in either groceries or liquor in the same centre. With Game having rolled out their Foodco offering in September, Shoprite believe this puts them in violation. Massmart believe that Shoprite are misreading the letter (if not the spirit) of the agreement, and have put the matter to the Competition Commission (against whom, you will recall, they were latterly railing on the subject of the Wakro deal). Young Mr Pattison has cheekily asked how Whitey Basson can be against protective tariffs for manufacturing, but is averse to robust competition in shopping centres. At time of going to press the Court had found in Shoprite's favour but Massmart was going to take it on appeal.

Comment: So what oppresses the Whitey brow, as he stands there on the terrace overlooking the vines, swirling the pinotage and contemplating all that he has wrought? Now we know.

A slice of life for you from Zimbabwe, where 51 workers that OK Zimbabwe inherited from Makro are giving their new bosses a hard time for what they consider harsh working conditions. And things have devolved into a bit of a war of words between the retailers in question. But let’s backtrack a little: you may recall that Massmart exited Zim in March 2011 under the government’s frankly loony indigenisation policy, which required 51% Zimbabwean ownership of any foreign business. Massmart sold their only Makro in Zim to OK Zim, which rebranded it OK Mart. The workers in question complain inter alia, that since the takeover they no longer have access to free transport, they have to pay more at the company canteen, and they are required to work overtime. Management allege that the only thing they have to complain about is that they don’t get to steal from the business any more. Which they had to do because Makro was broke. Makro reply that their exit from Zim was orderly, planned, and not in any way brought about by bankruptcy.

Comment: Nasty stuff. One wonders why one bothers sometimes.

Remember the Game 503? They were the retrenched workers whose reinstatement was adopted as a condition for the Massmart/Walmart merger going ahead, way back in 2010. Back then, Massmart put out the call via press ads and email for the workers to present themselves at their nearest stores to get rehired. About 300 responded. This year, the Men in Black were ordered by the Competition Commission to reinstate the remainder, and given a September deadline which has now passed. Part of the difficulty, say Massmart, has been getting hold of the people in question. Not so, say SACCAWU who with admirable efficiency have presented Massmart with a list of names, addresses and proof of prior employment. Massmart argue that to date they have complied with both the spirit and the letter of the agreement.

Comment: More for Massdiscounters to worry about at a time when that business has worries aplenty on its plate.

If you're currently bringing a well-priced wine to the thirsty palates of South Africa's value-conscious punter, but are looking for a more global audience for your product, you may wish to have a word with Massmart. The Men in Black, you see, are incentivising the best performing wines from its Developing Wine Brand Programme, by providing them with the opportunity of reaching some of Walmart's key markets internationally - a road down which the Seven Sister's brand and King Goodwill Zwelithini's Bayede! Wines have already skipped. The programme is part of the Supplier Development Fund (SDF) which was established as a precondition for the Wakro deal, and it has seen the sales of 16,800-odd bottles to date by the 19 participating brands in Makro and Game stores.

Comment: Way to turn the supplier development frown upside down, Massmart. Nice one.

After their somewhat muted results last week, a nevertheless confident Massmart have sprung back with the announcement that they’re entering the tricky market of building supplies for the poorer punter with a new store brand called Build Rite. Build Rite goes up against retailers like Iliad and Cashbuild, both of whom are demonstrably struggling a little right now, but young Mr P. is undeterred, arguing that self-builders in poorer or more rural areas are looking for the finishing touches like nice mouldings and skirtings, and are dissatisfied with the bog-standard range of plumbing fittings currently on offer in that market. Massmart has enjoyed great success over the years with their Builder’s brand, which is aimed a little higher up the economic ladder as it were.

Comment: Brands like Spar’s Build It has fared pretty well across the spectrum, so given Massmart’s reach into the lower end and its sophisticated supply chain, this may be one to watch.

Sales were up a disappointing 8.9% to R32.37billion, or 5.5% in comparable terms over at Massmart for the six months to June, with first half profit down a worrying 9.9% as South Africa’s punters feel the pinch in a slowing economy. That’s the bottom line. The better performers within this were Massbuild, growing at a comparable 9% as their first RDC comes on-stream, and Makro, at a comparable and inflation-beating 6.9%. Game, on the other hand, grew comparable sales just a solitary percent. Like Shoprite, Massmart are looking for growth elsewhere in the continent, with a new food format they will test in West Africa towards the end of the year and 90 new stores planned for the next three years. Among The Men in Black’s other strategic priorities are a continued focus on food and more energy on clothing and e-commerce, as general merchandise declines here as it has abroad.

Comment: A rough ride indeed for Massmart, dependent as they are on the lower-to-middle end consumer in a threatening economic climate.

Last week we glossed over, broadly hinted at and subtly alluded to Massmart’s interest in the Kenyan market, sparing you the details. In hindsight, we could have been a little less obtuse, something of which we have on occasion been accused. Turns out Massmart have been having words with Naivas, a family-owned outfit with 28 East African stores, about the acquisition of either 50% plus one of its shares, or 67% of them, depending on whom you talk to, as a bridgehead into the burgeoning market in that neck of the bundu. While a feud in the family has as we reported stalled things a bit, there seems to be a fairly good chance of things going ahead, although young Mr Pattison isn’t saying one way or the other.

Comment: Burgeon, you will no doubt be as gratified to learn as we were, comes from the Latin noun burra, a shaggy cloth no doubt used to wipe down the old mensa. And you thought we were obtuse.

And speaking of the wheels within the wheels of a strategy for African expansion, Massmart’s plans to move into Kenya through the part-acqusition of local outfit Naivas has encountered some resistance from a shareholder who wishes to prevent his siblings from flogging the family silver. But the Men in Black, we are told, have more irons in that particular fire should the Naivas deal go south. Three of Kenya’s major retailers, Tusky’s, Nakumatt and Naivas of recent mention, are family-owned, making them suitable targets for acquisition and a fourth, Uchumi, was targeted some time ago by Shoprite.

Comment: Kenya is emerging as the strategic lynchpin for retailers looking northward.

Ok, so maybe we’re a tad late with this one, but you lot in retail-landia haven’t given us much else to go with this week, have you? So up to Botswana we go, for the opening of Builders Warehouse’s second store in that land of deltas and deserts. Massbuild invested R20.5 bar on the store, which comes just short of two years after the opening of its first store in Gaborone back in ’11. And you’d be forgiven for thinking you’d walked straight into your local BW too, since the new store’s design and layout is in line with SA Builders Warehouse outlets. Commenting on the new store, Chief Pattison seemed well chuffed, announcing that it is “in line with Massmart’s Africa expansion strategy and we have several new sites approved in our existing African markets.”

Comment: Although the Group’s expansionist plans should really come as no surprise to anyone, now should they?

The hatchet-faced men and severely-suited women who ply the rough streets of Analystville are less than impressed with Massmart’s trading update. The Men in Black grew sales 8.9% to R32.3bn in the 26 weeks to June 23, with comparable store sales up 5%. Within this, Makro performed slightly better at 13.6% and 6.9% comparably, with Massdiscounters, comprising Game and DionWired, growing just 9% or 3.7% on a comparable basis. Massbuild grew 9%, but Masscash, operating Massmart’s lower-end food brands, came through at a worrying 5.5%. This according to various commentators reflects the global trend of slower economic growth and the national phenomenon of credit-stretched consumers, and things are unlikely to tick up substantially any time soon. The real worry is that comparable sales growth showed a declining trend over the period under review.

Comment: Now does not seem to be the right time to gauge the success or otherwise of the Wakro deal, whose outcome may perhaps better be measured over decades rather than mere years.

If you had been a fly on the wall at last month’s Massmart AGM, you may have witnessed a spot of unpleasantness from the institutional investors. Or you may not. Massmart aren’t saying, pleading the fifth and revealing only, as required by law, that all motions were passed by a comfortable majority. Although if there had been issues, and we aren’t saying there had, one of them might have been the special resolution to repurchase shares. Massmart has revealed, you see, that in the 26 weeks to December it bought back R124million of its own stock – which according to investor PIC after last November’s AGM (the Wakro transaction meant that they had to have two in the same year to get everyone into step), is a move likely to “strengthen the voting power of Walmart, the controlling shareholder”.

Comment: “Quickly, look!”</br> “What is it?</br> We’re putting up new stores in Africa!”</br> “But what about the share buyba…”</br> “New stores!”</br>

Massmart’s sales for the first 21 weeks of its FY rose only 9.8%, or 5.6% in comparable stores, which disappointed punters to the tune of 2.6% a share. This slow top-line growth is not what the doctor ordered when you look at the sizeable investments the Men in Black have made in the supply chain, although Mr Pattison promises to lay off the Nintendo to focus on growing sales, tightening up on costs, and keeping his room tidy for the remainder of this rapidly diminishing year.

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Comment: And so it begins. Although with Games outside South Africa growing sales faster than those at home, it’s a questionable approach.

Durban boykie Brett Latimer, who made a packet selling Cambridge to Massmart in the year 10 then rather cannily holding the right to still do his procurement through their Shield buying group, is looking to make a similar pile with Oxford, which will appeal to the high-street rather than the transport-hub shopper. And who knows, in a couple of years’ time Uncle Massmart may well come knocking again. They are, after all, still 8 chaps short of a boat race.

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The People’s Jack Russell, Trade and Industry guy Rob Davies, has done an about face on the Wakro deal, saying that the supplier investment fund which was part of it has indeed started to produce jobs and that foreign investment is not in and of itself a bad thing. His only regret is that South African companies are not capitalising more abroad. But that sounds dangerously like capitalism to us.

Comment:

After those iffy interims, in which profits were hit by a combo of DC openings, costs associated with the Walmart deal and pressure on Game’s credit-strapped, middle-income shoppers, one should expect a rebound from Massmart some way down the track. But not, it appears, before that leafy bend just coming into view: sales were up just 11.4% in the first eight weeks of 2013, down from last year’s more strapping 14.7%. Mr Pattison appears to be in it for the long haul, however, ruefully acknowledging the impact of the capex in his eight DCs over the past five years (billions, we’re told, somewhere between three and five of them), but pointing out that the DCs will be needed if growth is to continue over the next 10 to 15 years.

Comment: Still, with the likes of Shoprite breaking open the old war chest as Massmart intrudes more deeply into the food market, the head that wears the crown will rest uneasy for some time to come.

It’s not every day that a new Makro opens. Because there would be a lot more Makros if one did. Which is why we’re telling you about this particular one, a 19,000m2 giant on a 7.7ha site in Alberton, containing under its valued, corrugated roofing over 55,000 different quality branded products. And it’s not just Mrs Joe Punter who will find her natural discount home there, oh no: Massmart are going for the larger commercial customer here, whose needs will be met in a dedicated check-out area completely separate from the retail side, with metal cages to hold stock for them overnight if necessary and a wide overhanging roof to make collection even easier. Caterers and schools and offices also will be similarly served. In keeping with Massmart’s policy (and that of its American cousin) the store will be environmentally friendly in ways as yet to be specified, and has been financed in part by Nedbank, who have already sprung for two in the past year. 

Comment: Bullish stuff from Massmart, in a strategically significant ‘hood.

Last week, the Men in Black were waxing despondent about their upcoming interims, given the high costs associated with having sold the family silver to the Americans. This week, the picture seems a little sunnier: sales growth of 14.7% for the six months to 23 December 2012, although operating profit was up by just 6.1% as expected. Gross margin tells a different story, though, climbing 18.3% thanks to sterling contributions from Massbuild and Makro and Game Africa, where the arrival of Foodco has been well received by punters. Game South Africa, not so much, with sales growth of a paltry, if we may use the term, 1% – a slide Massmart are attributing to the embattlement of the middle income consumer. But food and liquor across the Group is on the up to the tune of 19.6%, with the contribution of the category now sitting at 54.4%.

Comment: A business in a state of rapid transformation, making some necessary sacrifices on the way to a no doubt glorious destiny.

Massmart have dropped a ton of wedge on re-engineering their supply chain, with the first phase due for completion by the end of this year, by which time they we will have completed three Massdiscounters RDCs, three Makro regional warehouses, one Cambridge DC and one Massbuild national DC. According to Mr Pattison, “the benefits of these investments, alongside investments in skills and systems, should be seen in the next five to ten years as the network is optimised.” Bit of a medium to long-term vision then.

Comment:

Massmart have mentioned that their profit for the six months to end December may be down by as much as 25%, as a result of costs related to the sale of half of the business to Walmart. Had those costs not been factored in, growth in Headline earnings Per Shares (HEPS), a reliable measure of profit, would have been in the single digits, kept on the low side by Massmart’s drive to compete with other food retailers on price as it establishes itself as a grocer.

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In another trading update which has failed to invigorate analysts (see Shoprite, above), Massmart have posted sales growth of 14.6% for the 26 weeks up to the 23rd of December, for a total of R36.1beelion. Within this Massdiscounters (that’s Game to you) grew by 7.7%, Masswarehouse (Makro) by 23.4%, Massbuild by 10.0%‚ and Masscash by 15.0%. The big disappointment, obviously, was Massdiscounters, which with its Foodco offering along with Cambridge and Makro’s existing food business is at the forefront of Massmart’s efforts to gain share in the grocery market. Some analysts have expressed disappointment that the effect of Walmart on the bottom line is not yet readily apparent.

Comment: But give them time, eh, okes.

OK, normally we might consider it to be beneath us somewhat to report on the doings of a single-store outfit, but this time we’d be wrong. Durban’s Brett Latimer and Paul Beltramo have dropped 75 bar on opening a 2400m² super on The Bluff in Durban, and called it Oxford Freshmarket. The last time they started a business named after a posh English university, they sold it to Massmart for R500million. Woolies have entered into a partnership with Deacons, their one-time major franchisees in Kenya, to run their retailing operation there under the banner of a new business, Woolworths Kenya Proprietary limited, as a JV in which the Dapper One will hold a 51% stake. Choppies have launched their first South African hyper, a 3610m² whopper in Brits, Northwest. Game have increased their grocery allocation to 20% of retail space, with a long-term strategy to grow to 5000 line items in all its stores, and 85 Game Foodcos up and running by 2016.  Pick n Pay’s champion franchisees John and Peter Baladakis are opening a 3800m² concept store in Brentwood Park in the East Rand, and Shoprite are pretty much keeping on keeping on.

Comment:

Skinny Santas in red plastic santa suits ringing bells outside furniture stores. People you’ve never clapped eyes on claiming to be the postman pitching up in mid November for their Christmas box. And Massmart talking down their prospects for the holidays: the traditional early signs of the festive season are everywhere. The Men in Black have announced – Noël, Noël – that their margins will remain under pressure through 2013 as their low-price market share strategy rolls out and that – Deck the Halls – sales during the December spree will probably remain flat compared with last year. This will enable them to say “Jus, we were only stoked ay” with a look of pleased surprise on their faces come March when the numbers tell a different story. They have, you will note, recently reported that sales increased 16.2% for the 20 weeks to 11 November, a period for which they had previously, no doubt, offered a gloomy prognosis.

Comment: Falalalala, lalalala

In a stunning victory for either Massmart or the ministries of trade and industry, agriculture and economic development and Saccawu, the Men in Black will be required by the Competition Appeals Court to cough up R200million into a supplier development fund, twice as much as they’d initially budgeted, but only 2/5 of what Saccawu were asking for. The monies (ahem) which will be disbursed (harrumph) over a five-year period, will be used to protect small local suppliers against a putative Walmart-funded wave of foreign imports, like no-one else does that, and enable them to take advantage of Walmart’s global value-chain. For e.g. bringing small-scale farmers into the supply chain through training, mentoring and technical assistance. Importantly, Massmart-Walmart will have discretion over the total, which is beefed up by R40million they’ve already kicked in, although advised by a board made up of representatives of the various parties.

Comment: So that, we hope, is settled.

Nakumatt, Tuskys, Uchumi, Naivas, Ukwala, and Chandarana. That’s Massmart’s reception committee of hardened local retailers when they open shop in Garden City Mall in Nairobi in 2014. But there should be enough to go around: Kenya’s GDP is expected to continue growing at around 5.1% through 2014, and seven malls – always an indicator of rude good health – are due to open by then as well. And while the big six turn over somewhere between R10–20billion a year, they make up only 20% of the market, with the rest going the way of independents and spazas. And the World Bank, who should know, reckon that 40% of Kenyans pass regionally at least for middle class, surviving on $2–$10 per day.

Comment: A picture as rosy as the freshly-tailored shirt on an eager young Game manager’s back.

Troubled UK Confectioner Thornton’s, which has recently embarked on a restructuring programme which will see 180 stores close in order to bump up the proverbial bottom line, has signed a deal for the distribution of its self-branded treats to Massmart, with scant detail given as to the scale and precise nature of the deal.

Comment:

If you’re battling to get a straight answer from the contractors doing your kitchen, perhaps Investec Property may be of some assistance. For it was they who assisted Massmart in the expansion of Makro’s Midrand DC, adding 11,000m² of space for a cavernous total of 27,000m², and all of this in just over six months, from November last to July inst. And all of this with barely a pause for breath: Makro was able to keep the facility fully operational during the extension and refurbishment of the facility without any interruption to their day-to-day activities, although they did spend some weeks into the new section for it to be fully operational by the end of August. Improvements to the site, facilitated through the expansion included the installation of a new roof over the entire premises as well as an upgrade to the fire control systems.

Comment: Look we did mention it was a slow news week. But an impressive feat of sheet-metal and breezeblock construction nevertheless, and one which will no doubt do wonders for the already impressive efficiency of the Makro business.

“Whither Massmart?” you muse idly, and again you have uncannily come to the right place. Having delivered a very tidy set of results indeed, transaction costs notwithstanding, they are poised for more bejizzlement and what have you in the current F to the Y. Just for eg., they are planning to spend R2.6bn in the next 16 months, mainly on the opening of 40 new stores, 35 of which will be within the borders. The Men in Black are champing at the bit to make like Whitey in Africa, but property rights remain an issue. All of this on top of the record R1.7bn they invested in stores and infrastructure last year, which has put the squeeze on margins somewhat. These will grow, they say, after 2014, once the investment in DCs and IT start to really bear fruit. “We’re in a heavy investment cycle,” says Mr Pattison, who is probably, no, definitely, the coolest retail CEO in SA. Until Pick n Pay hires Tom Petty or someone like that.

Comment: And if it’s retail property they’re after, they should have a word with Whitey himself…

Massmart has just unleashed its first Walmart private label product onto the market, in the form of Great Value alkaline batteries which at 35% less than locally produced batteries will in all likelihood put it amongst the competition. The Great Value brand carries lines in frozen foods, baked goods, soups and juices, and its arrival, says analysts, could spark the price war we’ve all been holding our breath for.

Comment:

Here, at last, those full year results for Men in Black: total sales increased by 15.6% to R61,209million for the year to June, operating profit up 3.7% to R2,135million before transaction costs. Like store sales were up 9.6%, with 25 new stores opened, and 15 acquired, for a total of 348 after the closure of 5. Trading space increased by 7.3% to a total of 1,350,300m², and a record R1.7 billion in capital was spent on stores and infrastructure. All of this had an impact on the old bottom line, which with above-inflation increases in local taxes and services was hit by a 19.8% increase in costs. According to that nice young Mr Pattison, the high comparative sales growth suggests that punters are in better shape than they’ve been given credit for, and that retailers are becoming ever more competitive and innovative in their ceaseless quest to deliver value.

Comment: So there you go. Nice results, better prospects.

Despite predicting profit growth for Massmart of approximately double what it turned out to be for the year to June, six analysts polled by Thomson Reuters join the likes of meteorologists and sports journalists in the ranks of the mystifyingly still-employed. Massmart shares have fallen about 5.1% on a trading update which puts full year profit at 34% rather than the predicted 66%. This as a result, say the Men in Black of the cost of integration with Walmart. Getting bought by The Big Feller is not an inexpensive exercise, apparently. The full-year charge for integration this year will be about R170m, but it will go down to a more palatable R50million per annum within the next 18 months. However that number would settle down at about a R50m annual charge, chief financial officer Guy Hayward said at the time, adding that it would probably take about 18 months to get to that figure.

Comment: Still, a creditable performance in a tough trading climate.

It’s amazing what you can do with R100million if you stretch a bit here and tuck a bit there. Massmart, for example, is hoping to integrate 1,500 smallholder farms into its supply chain over the next five years, ultimately sourcing 30% of its fresh produce from small local farmers, using its Supplier Development Fund (of anything between R100million and half a billion, depending on who you ask) and Walmart’s Direct Farm methodology, pioneered in India, China and Latin America, to get the ball rolling. And the government – remember them? Yankee imperialism, death by imports, the end of the working class, that government? – are getting right behind the Men in Black, with Agriculture, Forestry and Fisheries Minister Tina Joemat-Pettersson popping in at Massmart’s Direct Farm Initiative in Limpopo in her Walmart cap and calling for public private partnerships between the department and retailers.

Comment: The Road to Damascus, eh. Damascus, Limpopo, that is.

The consensus among the gimlet-eyed men and pencil-skirted women who walk the bitter, lonely road of the analyst seems to be that the arrival of Walmart on these shores has indeed been a good thing for the dear old South African punter. Massmart reckon they saved Mrs P. about R300million last year in aggressive discounting and longer-term promotions, and Checkers are claiming the same. Unless they’re claiming that together they have saved consumers R300million, which given their thin track record of joint ventureship is probably not the case. And according to the business which unfortunately goes by the name of  Red Gekko Design and Branding Solutions, but which nevertheless runs the very useful Retail Price Watch website, retailers have been competing in the “must have” categories, ordering lots of such necessities as toilet rolls, washing powder and tinned goods and selling them low. These cuts are not coming out of the retailers’ own back sky, but must be wrested from suppliers, who in turn are finding it in supply chain efficiencies, to the benefit of everyone.

Comment: If true, and this can surely be only patchily so, it does indeed look like a bit of a win-win.

In one of those happy bits of mathematics that roll around every other results season or so, Massmart’s year-on-year revenue growth turns out to be more or less exactly ten times that of Walmart’s revenue growth back home, give or take and speaking percentagally. 15.5%, to be precise, compared with 1.5%. Although adjusted for currency and billions of dollars, it’s a very different picture, obviously. But it does go some way to explaining Walmart’s interest in the African market. More about those numbers: Sales R61.2billion and climbing, with like store sales up 9.6%. Massdiscounters up 11%, Massbuild up 13%, Masscash up 16.5% and Makro really really up at 20.1%. Masscash, housing as it does the crucial Cambridge acquisition, is the one to watch as it is at the vanguard of Massmart’s stated desire to build a R20billion food business in five years. If it’s the full results you’re after, bide your time until 22 August, when Mr Pattison will deliver them in suitably measured tones.

Comment: But so far, an excellent set of indicators, which would seem to indicate that the Walmart experiment, paired with Massmart’s superb fundamentals, is working.

... but there’s ongoing drama with the Walmart/Massmart transaction. Not only can the members of the court-appointed panel on the supplier development fund not agree on quantum, they refuse to put their names to the same report, resulting in not one but two documents for the Competition Appeal Court to consider. According to the representatives of SACCAWU and the government, Messrs Hodge and Stiglitz respectively, R100million is woefully inadequate to cover the goals of the fund, and R500million-R2billion over five to ten years should just about do it. Massmart representative Dr Mike Morris in his report worries about the lack of administrative oversight over such a large sum of money. And various commentators have wondered whether such a penalty should not be levied upon all retailers – or indeed anyone importing inexpensive t-shirts from China.

Comment: From a crusade to a vendetta to a pogrom, and thence, inevitably to a big fat joke.

Giving East African pretender Nakumatt a run for its money would be our very own Game, which along with rag merchant Foschini will be anchoring Garden City, East Africa’s biggest mall at 4,645m², on the Thika Highway, with completion scheduled for early 2014. Kenya, you may recall, is a previous basket case (although a well-woven and attractive basket case) which is all of a sudden challenging South Africa for the admittedly made-up title of “Gateway to Africa”.

Comment:

The panel of experts appointed by the Competition Appeal Court to consider the cost of developing training programmes to help local suppliers participate in Walmart’s global supply chain and indirectly to put the court in a position to develop an “investment remedy” that is rational and justifiable has, you will be relieved to note, been released, but only, you will be troubled to note, to the court and the lawyers concerned. The lawyers, we are given to understand, have since formed a co-operative lettuce farm and a white-goods assembly plant.

Comment:

One of the miracles of Massmart is the sheer volume of hungry young talent they have at the top, and how they all seem to pull together for the good of the team. But there do seem to be enough serious positions to go around, and when they aren’t, they make them. Witness this week the appointment of CFO Guy Hayward into the newly-created role of Chief Operating Officer. This, we are told, because top man Grant Pattison has his hands full with matters Walmart, and needs a tested comrade to unload the more day to day aspects of his job onto. Hayward is extremely well-qualified for the role, having once been a serious consideration as CEO. He is replaced by the similarly well-qualified Ilan Zwarenstein, who has worked alongside him for years and has served as a non-executive Divisional Director. Pattison’s number of direct reports now drops from 14 to 8.

Comment: Strategic deployment of key resources there, lieutenant.

Massmart are planning to take on the competition – as opposed to the Competition Commission – with the judicious deployment of Asda practices in the South African market, we are told. This is what we industry types call a big deal: Asda promises to be 10% cheaper than its competition, and fields hundreds of thousands of online price checks from punters weekly to back this up. They have a private label ratio of 50% across the board, which goes up to 90% in categories like meat, and they have a “relatively flat” gross profit margin in order to keep the customers streaming in. A caveat though: Sanlam are calling Massmart a sell as they reckon the share is about as ripe as it's going to get, and here we'll hand over to them: “We expect Massmart to find it a lot tougher to build substantial scale in the food retail sector compared to what it has experienced in the fragmented and unorganised home improvement, building material and general merchandise industries.” Couldn't have put it better ourselves.

Comment: Have Sanlam looked at what Asda-like practices might do on the food front, we ask ourselves. Hmmm? Eh?

The government’s obsessive pursuit of the Walmart/Massmart deal has cost you and me – or taxpayers, anyway – something in the order of R4.1million to date. Don’t ask us, ask them, they’ve fessed up in a bland and neutral press release whose only bit of justification for the expenditure goes a little something like this: “The costs … should therefore be viewed in the context of the significant outcomes which have been achieved for the public in this matter.” And in order that the public continue to benefit from the government’s dogged representations to the various authorities, they’ve hired someone by the name of Joseph Stiglitz (no relation to any fictional deranged Nazi-killers), ex-chief economist for the World Bank and a Nobel laureate as their representative on the committee which will be looking at ways small farmers can sell their tomatoes to Makro, or something.

Comment: And they’ve got Stephen Hawking in to change the light bulbs.

Massmart have appointed a heavy hitter as their candidate for the panel which has been tasked by the Competition Appeals Court with identifying how local South African suppliers can be assisted in order to benefit from the Wakro deal. One-time Marxist and touch-rugby dangerman Professor Mike Morris, who has been prominent for his commentary on the travails of the garment industry, is founder and head of Policy Research in International Services and Manufacturing (PRISM) at the School of Economics at the University of Cape Town. In other competition-related news, Massmart have received unexpected support from a man who once headed up the Competition Tribunal and now leads Cosatu’s corruption watch. David Lewis has argued that Economic Development Minister Ebrahim Patel is an “activist, interventionist and micromanaging minister” who uses the competition authorities to leverage concessions out of international investors.

Comment: PRISM. Now there’s an acronym. “You leave us no choice but to call in the Man from PRISM.”

Much has been made by its competitors of the fact that Massmart is still a relatively minor player in the food market. But the indications are that this will change rapidly, with the Foodco experiment – and we use the term advisedly – being given priority as a vehicle for growth in this area. And speaking of priority, Walmart have been dishing that out in spadefuls to Massmart, making available all manner of toolkits, jampacked with ways to make the business more efficient in areas like logistics, customer service, merchandising, planning, product packaging and energy usage. Ten Walmartians have been ensconced with Massmart permanently since June last year, and Massmart execs have been flitting hither and thither to observe best practice firsthand. How to compete with all this scale and effort? Service, says Aki Kalliatakis, managing partner of the Leadership LaunchPad, and expect the other retailers to start upping their game in this regard.

Comment: That was Your Week in Wakro.

It has been a good week for the Men in Black, with the Competition Appeals Court approving the Walmart merger, and the necessary authorities giving the nod to the Namibian wing of the transaction. On the less arid side of the border, back here in the RS of A, Judge Dennis Davis approved the merger on the condition that government, the merging parties and labour all sit down together to conduct a study on the impact of the merger in supplier jobs and that the parties examine the ways in which small suppliers can participate in Walmart’s global supply chain. The court will then formulate the appropriate structure for the supplier development fund – effectively overturning the Competition Tribunal’s stipulation of a R100million fund.

Comment: Massmart seem pleased, and so, interestingly, do international troublemakers UNI Global Union, who have been towelling Cosatu down in the red corner.

Weighing in on the Walmart discussion in Namibia last week were some of the country’s smaller retailers – and surprisingly, the target of their ire was not Walmart or Massmart, but the Namibian government, which, they feel, has offered them insufficient protection from other international retailers, namely our very own Shoprite, Pick n Pay and SPAR. The march of the majors has played merry hell with the little guy, apparently, with four chains – Punyu, Continental, Elago and Black – having gone out of business since the 90s, and others like Okalindi shrinking dramatically, having gone from 10 stores in Windhoek to just three. The issue, according to Chris Siririka, National Coordinator at the Indigenous People’s Business Forum (IPBF) is simply purchasing power. This has led the IPBF to look into a group purchasing scheme for retailers, and the government to consider an amendment to the Foreign Investment Act.

Comment: Anti-freemarket protectionism? Or the legitimate encouragement of the diversity which when nurtured can be a powerful engine for sustainable economic growth?

One assumes that Massmart are fairly confident of the outcome of this week’s decision by Judge Dennis Davis regarding the appeal by the Departments of Economic Development, Trade and Industry, and Agriculture, Forestry, and Fisheries against the Wakro merger. The Departments wish the transaction sent back to the three betoga’d patricians of the Competition Tribunal for reassessment. They reckon the Tribunal hasn’t inspected in enough detail the benefits or otherwise of the merger vis-à-vis job creation and small local suppliers, and quite frankly are looking for a different answer to the one given. SACCAWU, in the meantime, filed a separate appeal to the effect that the decision failed to sufficiently take into account something known as “the public interest”. They would like the mooted Supplier Development Fund to be increased to R500 bar.

Comment: Whichever way the judgement goes, we at the Tatler confidently predict that it will be delivered in a genial and avuncular fashion.

It’s a slow news week when we give Bob the Builder a look in, but in this instance the retail developments in question are of some significance, so here goes. First up, Pick n Pay who flushed with the success of Posh Store on Nicol are partnering with Atterbury to open another green supermarket, this time on the site of the driving range on Hendrik Potgieter in Roodepoort. The Falls Pick n Pay will feature exceptional fresh foods, more imported lines than any other Pick n Pay and specialist ranges unique to flagship stores, a restaurant, liquor store, wine boutique and cheese room, you name it. Next up Makro, who are for the first time dipping their toe into the bracing waters of the Free State with a brand new Makro, at the junction of the N1 and the N8 in western Bloemfontein, in partnership with the Moolman Group and Nedbank Corporate Property Finance, which is putting up the R170 large for the project, which when complete will attract shoppers from all over the province and from Lesotho. Finally, Boxer will be the anchor tenant for an eight-store mall being developed by Imperium in Duncan Village, previously unserviced with respect to modern retail, in the Eastern Cape, a Boxer stronghold.

Comment: As we observed recently, if the measure of a nation’s health is the strength of its retail sector...

Over at Massmart, young Mr Pattison refers to a “period of investment” which will ultimately be “good for the company.” A solid set of numbers though – revenue was up 14.9% to R31.54billion for the six months to December and operating profit before forex and integration costs was up 4.8% to R1.326billion. Of note was the fact that comparable sales were up 9.2% which, looking at national retail sales growth of 8.7%, suggest an overall gain in market share. Sales in Africa were up by 21.3%, which adjusted southward for the strength of the rand translates into a gain of 12.8% in local currencies, respectable if not stellar. The star performer appears to be the Masswarehouse (Makro) division, with sales up 18.3% and trading profit before tax up 12.4%. Of interest is Masscash, the cash ’n carry business, where sales grew 16.3% but profit before tax dropped by 21.8% as a result, perhaps, of big investment in acquisitions like Rhino and store makeovers.

Comment: Tough trading conditions and the odd distraction here or there might have played a part in this slightly muted set of figures.

Singing on occasion off the same hymn sheet, Messr’s Basson and Pattison have both highlighted the opportunities represented by Nigeria in recent pronouncements, with Whitey saying that the good-natured lunatic up north could support northward of 700 grocers in the years to come and Mr P reckoning that Game would be happy with 10-20 Game stores there in the next few years, and both seeming to agree that with the right mix of infrastructure and stability, it has the potential to be bigger than SA as a market.

Comment:

Our thoughts at the Tatler go to the family of the young man who lost his life in a botched hijacking after an armed robbery at the Builder’s Warehouse in Rivonia last Wednesday, and to Massmart, who handled the tragic situation promptly and with great sensitivity.

Comment:

The Men in Black are sticking to their shiny little guns when it comes to the empowerment of the pocket-sized supplier, apparently, entering into a joint venture, or JV, with the South African Bureau of Standards (SABS) to certify SMEs to a less onerous and less expensive quality standard than their larger counterparts. The plan is to have passed nine “supplier communities” including plumbing and electrical through SABS quality management training by mid-year, with a view to getting their products certified at the knockdown, entry-level cost of R8,000. The plusher model generally costs in the region of R30k. Some of the standards are compliance, safety, risk assessment, risk management, testing, records, qualifications, equipment, and primary suppliers.

Comment: This collaboration with the SABS, if that’s the word, suggests a cosier relationship with government than stick-in-the-muds like Ebrahim Patel would prefer.

This telling quotation from the editorial pages of ANC mouthpiece The New Age: “The local retail market has become much tighter after the entry of global giant Walmart via a controlling stake in Massmart. The cut-throat competition can only be good for the consumer and the general economy.”

Comment:

Say what you like about accountants, they’re not boring. Oh, wait, that’s marine biologists we’re thinking of, and firemen. But when accountants name a survey, they do it with a certain je ne sais quoi. Thus the Deloitte Global Powers of Retailing Survey, in which our big boys have done rather well this year: Shoprite in 92nd position globally, up from 95th last year, and still the biggest in Africa and the ME. Massmart coming strongly in at 126th globally and second in Africa, and Pick n Pay at number 133 and third respectively – having once been the indisputable biggest retailer in the RS of A. SPAR a handsome 179th and 4th, with Woolies in a suitably muted but pleasingly symmetrical 222nd. Africa was the world’s fastest growing region, with 15.4% growth compared with Latin America’s 14.8%, which augurs well for the future.

Comment: Take that, Captain Ackerman! Kerpow!

Happy Massmart punters are tucking the napkins into their cutaway collars and squaring their elbows down at the Young Retailers Sporting and Social Club on the news that the Men in Black are set to deliver higher than expected headline earnings for the six months to Xmas: 10%-18% higher, or 402.4 cents to 431.6c per share, to be precise. Young Mr Pattison believes that this good fortune is due in no small measure to “investments in price, growth, capacity and integration.” He does, typically, caution that these investments will put some pressure on operating profit in the short term, but atypically also mentions that he expects sales to continue strong.

Comment: Cool heads, hot numbers in that business right now.

If it is your intention to pick up some of the estimated R44billion forked out annually by South Africa’s 800 000-odd stokvels, with their 11million-plus members, you could do a lot worse than emulate the example of Massmart, specifically the legendary Jumbo Crown Mines. Crown Mines has about 800 registered stokvels, and it gives them the treatment: orders by fax or phone, a picking and packing service to minimise delays and separate till points for their exclusive use at collection time. Or delivery, for that matter, to a designated area where members gather for the distribution of the swag. Not to mention a 20-25% saving that their buying power brings to purchases. More broadly, Massmart focuses on stokvels in which large groups aggregate their money to buy in bulk and then divide up their purchases rather than the several other variants of the same.

Comment: Stokvels are one of the better inventions of our shall we say chequered history.

“Research has established” is a phrase we like to throw around at dinner parties. It’s basically unplayable, and it drives the wife mad. But in this instance, research really has established that 76% of consumers believe that the arrival of Walmart on these eager shores will bring down food prices generally. Another group of fans are to be found among the ranks of the shareholders, who bought Massmart hand over fist on last week’s 26-week trading update (turnover up 15% to R31.6billion etc), driving the stock to a 12-year record of R182 per, having climbed consistently for seven full days. One punter stroking a thoughtful chin, however, is the Public Investment Corporation, distributor of government pension funds and ironically Massmart’s biggest South African shareholder, which said that it would “increase its engagement” with the Men in Black if it found evidence that they were adopting Walmart practices that are in contravention of the UN Compact for responsible investing.

Comment: Ooh, scary. “Increase its engagement.” Oooooh.

Starting the new year with a bang, Wakro have launched the third of their extended price cut promotions. The New Deal, as it is not being called, kicked off on Sunday last and will run for ten weeks at Makro, Game, DionWired and Builders Warehouse in categories spanning back-to-school, back-to-office and back-to-site in a nod to the strapped nature of everyone’s finances at this side of the year. That nice young Mr Pattison speaks in glowing terms of Walmart’s drive to deliver value to the consumer, and what it has meant for Massmart, but don’t believe us, here’s what he actually had to say: “An early Walmart success has been their ability to relentlessly challenge our buyers to become even more focused and energised to deliver and, more importantly, measure opportunities that they have identified to save customers money.”

Comment: So there you have it. Incidentally, the first two promos saved punters an estimated R100million.

Starting the New year with a third bang, for a total of three, would be the Men in Black, who reported sales up 15.2% to R31.6billion for the 6 months to December 2011, with comparable store sales up 9.2%. Massdiscounters’ sales grew by 11.5% with deflation at a worrying 5%, while Masswarehouse’s sales grew by 18.4% with inflation of 2.3%, Massbuild’s sales grew by 12.8% and Masscash sales grew by 16.5%. In a nutshell.

Comment:

At their AGM last week, the increasingly well-suited gents over at Massmart reported that total sales growth was 15.2% with comparable sales growth ticking along at 8.8%, and year-to-date sales inflation running at 0.8%. Grant Pattison noted that South Africa had moved into an inflationary phase, but taking a leaf from the book of noted social commentator Gareth Ackerman, opined that taking into account the general shakiness of the world economy and SA’s iffy GDP outlook, it was a good thing that interest rates were being kept at their historically low levels. Makro and Masscash were notable performers for the group, with growth figures of 17.3% and 15.9% respectively. And in a break from tradition, Mr P found it in himself to sound an optimistic note for the six months ahead, suggesting that ongoing sales performance will be strong, supported by its present investments in price, growth, capacity and integration.

Comment: There. A whole Massmart story, with nary a mention of you know whom. Big feller. American chap.

In the shifting sands that are Namibia’s competition regulations, the eighteen-wheel behemoth that is Walmart/Massmart is in danger of becoming mired. Last week, Wakro welcomed the decision by the Namibian Supreme Court to uphold their objection to a ministerial notice imposing foreign investment restrictions on the deal. However, one of the major clauses in the decision gave the Namibian Minister of Trade and Industry, Hage Geingob, final say over whether conditions attached to the deal by the Namibian Competition Commission are adequate – which could derail the deal or add unpalatable conditions to the manner of its execution. On the upside, anything Herr Geingob decides may still be challenged by any of the parties involved.

Comment: For Pete’s sake, give it a rest.

Besmirched and shunned by those government departments looking to score cheap union points, Massmart nevertheless continues to do good work with others, notably this week SABS, with whom it has signed a deal that will make it cheaper and easier for smaller suppliers to score that ever-important SABS stamp of approval.

Comment:

Earlier this year, Walmart spent a cool $300million buying Kosmix, a “social media technology platform”, whatever that is. Now, they have announced the purchase of mobile-ad-targeting company, the excitingly-named OneRiot. These acquisitions signal how very serious The Big Feller is about social media and mobile technology. Kosmix helps filter and organise content in social networks to connect people with real-time information – like where, for example, they could get the TV they’ve just snapped on their Smartphone for less, and at what price. Social media, the Walmart Lab believes, will help stores create predictable demand for certain lines and thus rationalise inventory. Phase 1 in the rollout of ecommerce for Walmart was bringing the store to the web. Phase 2, they believe, will bring the web into the store.

Comment: One day, your children could be undercover product-placers on Facebook, which will be a real job.

More on Wakro’s R100million war chest for the benefit of the smaller supplier, its keys clinking tantalisingly in the capacious pockets of ex-CGCSA CEO Mncane Mthunzi. It appears that the focus of the fund will be on development and support of small farmers and small and medium businesses, some of which may already be supplying Massmart. Nor is it all about the money: Massmart intends to upskill smaller suppliers in various areas, including packaging and transport, and the specifics of the increasingly Walmartian supply chain. An area of some uncertainty is that of farmers, where skills are in short supply, and where Walmart’s expertise will apparently come in handy – they have already imported an expert from India to assist in this regard.

Comment: Exciting stuff, Big Guy.

Massmart currently own 10% of the food retail market, which is reputedly worth R250billion according to most reliable thumbs sucked by various commentators in the past five years, but it wants more, more I tell you, aiming for 15-20% in the next five years. Ironically, however, the Masscash division, which has a greater focus on food than most, was the worst hit in the year ending June, with profits down 20% as a result of deflation, and the investment in Cambridge Food. Massmart’s strategy for growth in foods hinges on an identified 250 commuter hubs around the motherland where they will target the “people without cars” for Cambridge’s expansion, as well as the new fresh offering in Makro and Game’s Foodco store-within-(for-the-moment)-a-store.

Comment: A powerful strategy which shows all the signs of great execution.

In further evidence of Massmart’s designs upon the food market, the Men in Black have made an offer to purchase Fruitspot, a supplier of fresh fruit and veg, for one of those “undisclosed amounts” that are always so welcome when they pitch up on the bottom line. Fruitspot was established by the brothers Ferreira in Jhb in 1989, and now occupies a handsome 12,000m² facility in Marlboro, which cost them R60 big at the time, to give you an indication. Fruitspot, which interestingly serves other retailers including SPAR, will join lonely old Makro in the Masswarehouse division should the deal be approved by the Competition Nazis Commission. Fruitspot buys much of its produce directly from farmers, which is interesting, as it is one of Massmart’s supplier development goals, driven now by the energetic Mr Mthunzi (see Welcome above) to develop local farmers.

Comment: “Dramatic” is how Massmart’s intended growth has been described by no less a personage than Walmart’s Doug McMillon. Here we go...

The hilarious thing about the new assault on Wakro by the ministers of Trade and Industry, Agriculture and Economic Development, on the grounds of shaky process by the Competition Tribunal, is that the Tribunal falls under Economic Development. The likes of Rob Davies and Ebrahim Patel should have figured out by now that when they donned the poorly-fitting suits of Cabinet Ministers they stopped being the stone-throwing radicals they still fondly imagine themselves to be and took on the responsibility of growing the economy.

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OK let’s get this over with. Every week the papers are full of The Big Deal, with precious little room for the other guys in the dugout, but it is a big deal after all, and here’s everything you need to know until next week:

• Walmart put out a big, yankee blue and yellow broadsheet offering long deep cuts on attractive items from Game, Makro, DionWired and Builders
• Whitey Basson thinks Walmart is a “small competitor” upon whose “activity” he does not deign to comment
• Nick Badminton of Pick n Pay (at a trading margin of 2.9%) welcomes Massmart (4.3%) to the low-margin business
• That nice young Mr Pattison promises 15,000 jobs in the next 5 years and growth in the food business to the tune of R60billions – which will largely benefit local businesses
• SACCAWU are appealing the Tribunal’s decision on the grounds of witchcraft
• 3 Walmart men join the Massmart board – CEO Doug McMillon, money guy Jeffrey Davis and business development specialist JP Suarez
• SARS will be cashing in to the tune of R400million, as they do
• Messrs Pattison, Lamberti and Hayward jointly realise a handsome R249million through the sale of some of their Massmart shares

Comment: Which would buy you a lot of cheap TVs from Makro.

Business as usual, you say? Wrong! Massmart has engaged global supply chain optimisation service provider Manhattan Associates to provide them with several components from their Manhattan Scale: Supply Chain Architected for Logistics Execution (a mouthful, but kind of catchy) bundle, including its warehouse management module and some of the optimization solution stuff. And all of this, you will be interested to note, will be rolled out at a new 12,077m² warehouse facility being opened in Gauteng by Cambridge Foods, who were looking for a robust supply chain system for their accelerated rollout programme. They currently have 28 stores and are eyeing 100 in the next four years.

Comment: Manhattan, it may not surprise you to know, was the business responsible for getting Walmart’s suppliers RFID-compliant…

But what are Walmart/Massmart actually going to do? We’ve read the fine print so you don’t have to, and as far as we are able to tell, they plan to:

• Tell us what we should call them. Wakro, Walmat, Martmart, we don’t mind…
• Fork out R16.2billion for 51% of Massmart
• Expand Massmart’s food business 50% over the next five years
• Roll Foodco out into Game
• Expand Makro and extend the fresh offering there
• Open 50-100 stores over the next three years
• Open another 20 Cambridge stores in the next year, and rebrand some Rhinos
• Not open a Walmart
• Continue to buy 25% of all South African citrus and ship it stateside
• Improve Massmart’s logistics, inventory management and forecasting models
• Create 2,000-3,000 jobs “over the next few years”
• Re-employ The Wakro 503 asap
• Spend R14 bar of their R100million supplier development fund in starting local farms
• Take a “city by city” approach in Africa rather than a “country by country”
• Invest in Nigeria and explore markets like Angola, Senegal and the DRC
• Offer more refrigerated food in Africa

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If you pop into Makro Woodmead, we are reliably informed, there is a bottle of 50 year old Glenfiddich which could be yours for R150 grand – if, that is, Mr Pattison and the boys haven’t got stuck in there first, given the events of Tuesday this week. Of course, there are headwinds – Mr Patel at the Department of Economic Development is considering his self-defeating legal options and SACCAWU are threatening action. They feel that the re-employment of the 503 workers retrenched in June last year is still very much at the discretion of the business, and that the guarantee against deal-related job losses is neither quantifiable nor enforceable, and are accordingly consulting their attorneys about the viability of an appeal. The balance of legal opinion, however, is that this thing is a go, like it or not.

Comment: We like it. More competition at the top end of the industry to keep things interesting, and a vote of confidence in the RS of A as an investment destination. And if you’re looking for Mr Pattison, we are told he’s in Bentonville just at the mo.

10 things we didn’t know before the Competition Tribunal met to discuss the Walmart/Massmart merger:

1. Grant Pattison is a big softy. Who survived five years under Mark Lamberti and heads up the youngest and toughest team in retail.
2. One of the reasons it’s called the Competition Tribunal is because your competitors are allowed to come and dish the dirt on your business.
3. If you buy pasta from Shoprite, it might have come from Turkey.
4. Shoprite can close down a pasta factory in three months flat. You wouldn’t even know that it had been there.
5. Walmart was chatting to two other retailers, but Massmart won.
6. If Massmart stock something from China it’s because you, our valued customer, really, really wants it.
7. The Competition Commission absolutely does not think the merger should go ahead. Er, unless you accept some conditions. Like um, I know, I know – give some people their jobs back. Or something.
8. Cosatu doesn’t think R100million in supplier development cash is that big of a deal.
9. South Africa’s economy is not for sale.
10. Walmart may still bail, you see if we don’t. We were looking at two other countries, you know.

Comment: This is getting to be almost as good as the Hansie trial. Without the leather jackets and the barefaced lies. Obviously.

Nervous days for the Men in Black, with Cosatu threatening, as it will, that even if the stern patricians of the Competition Tribunal rule in favour of the Wakro deal, they will still oppose it in court, and failing that, we presume, on the streets. Under consideration, just to remind ourselves, are four main issues: the anti-competitive effects of the merger, with the possible removal of “effective retail competitors” (several of whom have expressed support for the deal), the issue of imports vs domestic products (has anyone looked on the shelves at Pick n Pay and Shoprite lately?), the unfair trade conditions imposed on domestic suppliers (it’s called “buying”, darlings. If you can’t stand the heat…) and job losses (all existing contracts will be honoured, and employment growth, rather than the reverse, is expected).

Comment: Just get it done already. Failure to sign would have actual, real consequences, not the hypothetical garbage being showboated around by the unions and their friends in government.

In Namibia, an application by the Competition Watchdog for all sorts of conditions of ownership and the prevention of job losses in the Walmart/Massmart deal has been overturned in court. So the final hurdle remains our Competition Tribunal – although Mike Duke anticipates that a breakthrough here is imminent, and believes that tremendous opportunities are to be had for the plucking in this great continent we call home. What’s that sound? Oh, it’s the recent dooomsaying analysts, wringing their hands, rending their garments and crying aloud “We were wrong!” Possibly.

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The Men in Black have taken on their chiselled chins the decision by the Competition Tribunal to delay the remainder of its hearing into Wakro until early May – which would result in a de facto postponement of the deal by seven months – although not without the odd well-crafted riposte, such as this one from Mr Pattison: “We are fully supportive of local manufacturing, but it would be disruptive of the completion process championed under the Competition Act to impose local procurement targets on one retailer to the exclusion of its competitors,” as neat a bit of dramatic irony as we’ve seen since Standard 4, when Miss Konigkramer reprimanded us for swearing at Bingham. Chairman Lamberti has weighed in with the view that while “the Competition authority cannot allow any dissenting voice to be ignored,” “the international perception of how this transaction is handled will be more important to South Africa in the long run than the transaction itself,” a warning tone as impressively dire as any you would find on a reading of our Standard 8 report.

Comment: Although the broad view is that Walmart is as yet undeterred.

The Competition Tribunal has adjourned its hearings in the Walmart/Massmart merger for six weeks, as SACCAWU threatened to withdraw from the proceedings unless restrictions on its ability to cross examine evidence were lifted. The hearings will resume in early May, and the postponement means that the transaction, if successful, will be delayed by at least two months. Massmart has issued a terse one liner to the effect that they have noted the Tribunal’s decision and are considering their options with the input of their legal team. The development raises the concern that even in the event of the Tribunal deciding in merger’s favour, SACCAWU will take the decision on appeal, further delaying the transaction.

Comment: In the Tatler’s long and proud history, we have never rendered profanity into print. We make an exception now: bollocks. This is destructive bandstanding by an organisation which has no real interest in the economic security of either this country or its own membership.

Knowing a good thing when they see one, Walmart will be asking Mr Mark Lamberti to stay on as independent non-executive chairman of Massmart should The Big Deal be approved by the Competition Tribunal. Mr Lamberti’s first duty would be to assist in the selection of a few good men – and, presumably, women – to make up a board for the new entity.

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The Economic Development Department, The dti and the Department of Agriculture, Forestry and Fisheries have made a joint submission to the lofty patricians of the Competition Tribunal, criticising the Marts, both Wal and Mass, for their perceived unwillingness to make any binding commitments vis-à-vis the impact of the merger between the two on local procurement, food security and BEE. The three departments were seeking a commitment from Wakro that it “at least maintain or increase the percentage of pre-merger local procurement by product category”.

Comment: Where do we start? With the dti, one of whose primary functions is to secure, not scare off foreign investment? With the Department of Agriculture, etc, who seems suddenly blind to the tons of apples and the hectolitres of wine already being bought by Walmart here? Public – and increasingly commercial – life in South Africa is currently being smothered by a blanket of box-ticking, point-scoring and agenda driving.

The first team at Massmart Boys High have reported solid sales growth of 13.3% to R27 billions and some change for the 26 weeks to December ’10, and an operating profit (beforeforeignexchangelosses) of 12.7%. Trading in Africa has its complications, including, these last six months, a foreign exchange loss of R79 and a half bar. Doing a deal with Walmart, as Captain Pattison rightly points out, will also take it out of a business. No matter though. Like store sales were up 7.3% and net trading space was up 8.7%, and the Foodco experiment in the Western Cape is roaring along, with a third store-still-within-a-store to open shortly. On the downside, the chaps believe that the second half of the year might echo the worrying slowdown in growth over December and subsequently, and are tightening ship, reducing stockholding and so forth in order to better ride it out.

Comment: Deals like Wakro can be distracting. But at the heart of the exciting Massmart business is hard-nosed realism and an ability to stick to the basics of retailing, which has seen them through tougher times than these.

Something else that slipped by us in the December rush was the offer by Massmart to purchase Rhino Cash ‘n Carry for a sum that is known to us, ahem. Rhino consists of 30-odd stores including two wholesalers and a number of liquor outlets, in rural and peri-urban areas in KZN and the Eastern Cape. It is part of Massmart’s Shield buying group, a fact which will hopefully help its case over at the Competition Commission.

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OK, not really. Obviously. It’s just our little bit of fun, you understand. And even if Walmart was buying, which they wouldn’t be, the upright Mr Ramburuth wouldn’t be selling. But it is true that the Competition Commission, to the somewhat theatrical dismay of the unions, has recommended unconditional approval of the deal to the toga’d ancients of the Competition Tribunal, who are probably dusting off the rubber stamp as we speak. They’ve put aside 4 days in March to deliberate on the matter, then it should all be plain sailing for Wakro, which merger will likely come into effect sometime in April. Massmart in the meantime continues to engage with SACCAWU in order to allay its fears of job losses, and it is understood that senior Walmart execs had cosied up to top government types at the recent WEF in Davos for broadly the same purpose.

Comment: Perhaps if Massmart had taken SACCAWU to Davos we would be having a very different conversation right now...

And in Massmart news unrelated for once to you-know-what, The Men in Black have announced the results of the annual Massmart CEO’s Innovation Award, which acknowledges outstanding value achieved through the creation and implementation of unique ideas, tied to six core value areas – from community support to shopper loyalty. Winner this year was Thomas Malada of Makro Strubens Valley, who in a partnership with the Centre for Small Business development at UJ and the Gauteng Enterprise propeller set up a scheme for small business development in the store and succeeded in attracting 150 new small business clients to the business.

Comment: Innovation in driving value, as inspired by business and indeed Weekly Guru Edward de Bono is central to Massmart’s relentless drive to excellence.

Speaking at a Kantar Retail day held last month on the subject of The Big Feller’s entry into our market, Director of Retail Insights and self-confessed Walmart trainspotter Bryan Roberts spoke at some length about Walmart’s possible intentions for Massmart’s trading brands. He compared Makro to Walmart’s Sam’s Club format, expressing the view that the two were virtually indistinguishable when viewed in a certain light and pointing to Makro’s bullish intentions for growth. He also mentioned that Walmart was not averse to a bit of C&C, so big up to Masscash there, and that food was going to be massive for the Group. In this regard, he predicted that Game’s Foodco project would probably end up as a stand-alone store in the near future. And the question on everyone’s lips: whither Massbuild? No problem there, Walmart is in fact the 4^th largest home improvement and DIY retailer in the world, so a nice fit all round.

Comment: Fascinating stuff, and well worth a listen when Mr Roberts visits our shores again.

The Men in Black have bested SACCAWU at a special shareholders’ meeting last week where the union was unable to secure a single vote against the acquisition of part of the business by ... what? You didn’t know? Bleeding heck. SACCAWU and its internationalist allies in UNI and UFCW seem unable to turn their opposition for the deal into meaningful action, with protests being called off, and apparently lukewarm support at best from Massmart staff. With the buy in from shareholders, that’s another major hurdle down for the deal.

Comment: Then it’s a quick whisk through the Competition Commission, and we’re home free.

Flushed, no doubt, with good cheer from their pre-Christmas drinkies with Messrs Basson and Wiese, Cosatu are planning a new year’s shindig with Walmart and Massmart, whom they intend to educate about the finer points of South Africa’s Constitution and Labour Relations Act, and to secure a few guarantees at the same time. Of particular concern to Cosatu, aside from Walmart’s union-busting reputation in the States, is the Large One’s capacity to undermine the manufacturing sector in SA with its global buying power. In other Cosatu-related news, the union has called upon its membership to gird themselves for the Mother of All Battles against labour brokers in 2011.

Comment: There is a school of thought that suggests that Walmart might represent a global opportunity for competitive SA manufacturers, with the emphasis, of course, on the competitive.

Walmart and Massmart announced yesterday that the former had made a formal offer to the latter for the acquisition of 51% of its shares, at the R148 per originally offered before certain shareholders – probably, we are reliably informed, the PIC – mentioned that they would like to see the stock still listed on the JSE. The PIC is Massmart’s only SA investor of any real scale and owns 14% of the company’s shares. There are of course a couple of hurdles still to get over, or indeed under – like opposition from the Unions, or the Competition Commission. Word on the street is that in the interest of the deal, Massmart might swallow a couple of unpalatable union-led conditions – for example, a moratorium on retrenchments.

Comment: In this instance, SACCAWU reminds us of certain schoolboy conspiracy theorists who used to sit at the back of the classroom and say “What if, sir?”

Economic Development Minister, the economically-bearded Ebrahim Patel, has convened a panel to advise the government on the likely implications of Walmart’s bid to buy a majority stake in Massmart. The panel will identify the policy issues, speak to a wide range of stakeholders, including retailers, manufacturers and trade unionists, and will focus on issues of economic development, like how many jobs will be created by the deal, or otherwise, as the case may be. SACCAWU, in the meantime, has indicated that it could go on strike should the deal go ahead, and has handed the unflappable Mr Pattison a list of demands, including that all existing conditions and agreements remain in place after the dotted line has been signed.

Comment: For the real lowdown on the deal, of course, you’d want to invest in our special report on the subject, by simply <a href="http://www.tradeintelligence.co.za/onlineshop/onlineshoponlineaccess/OnlineShopWalmartReport.aspx">clicking here</a>.

Oh, ho, and what is this? Massmart have quietly opened a very nicely branded food store, called Foodco, as a store-within-a-store inside their N1 City Game, increasing the Magenta Marvel’s resemblance in ranging and assortment to, oh, a Walmart, say. Although, as Massmart hasten to tell us, the planning for Foodco was well underway before Wakro^TM was a gleam in anyone’s eye. Foodco keeps costs down, from staff overheads to decor, offers a tighter range than most other grocers, caters for LSMs 6 through 10 and scarily, will honour Game’s promise to beat any price. It’s unclear whether Foodco will ever stand alone, although it is likely to do a great job at increasing footfall. And as the gimlet-eyed analysts over at Absa point out, it’s a great fit for Walmart, should the Big Deal go through.

Comment: And just the other day, we were asking Mr Pattison what his intentions were in food. Forthcoming he was not. For lovely Foodco pics <a href="http://www.tradeintelligence.co.za/Home.aspx">click here</a>.

As some of our more astute readers so kindly pointed out last week, there has been a fairly dramatic development in the Wakro^TM deal. Walmart, it seems, while still intending to acquire a majority stake in Massmart, may not be buying the whole farm, as it were, echoing their structure in Mexico, where they own 68% of WalMex. The Mighty One has announced that it is investigating the merits of keeping Massmart listed on the Johannesburg Securities Exchange (JSE) and acquiring an unspecified number in excess of 50% of the shares while still offering punters the more than generous R148 originally mooted. It is possible that some Massmart shareholders expressed dissatisfaction at the bid, on the grounds that if it was such a great deal for Walmart, it might be a good idea to hold on to those handsomely-scripted, gilt-edged certificates a little longer.

Comment: Potentially, then, the deal has just improved for local dabblers in shares of listed companies.

Last year, Massmart acquired the 22 stores of Cambridge Food, amid relatively muted fanfare. It was mooted at the time as a strategic acquisition, heralding The Young One’s formal dip into the enticing waters of retail cash ‘n carry, and headed up by the dynamic Jay Currie, formerly Group Commercial Director. Turns out, intentionally or no, that it was a very good move indeed – that the brand was a “big deal” for the dealmakers of Walmart, as a possible vehicle for the rollout of retail into Africa. The plan in any case was to grow the chain into 100 stores over the next five years, sticking to the strategy of competitively priced supers located near busy commuter hubs.

Comment: With Walmart’s buying power, Cambridge could find itself transformed from new Kid on the Block to Justin Timberlake himself, and a serious threat to the shall we say more established players. Even though Justin wasn’t an NKOTB at all.

Unless it was an elaborate (and expensive) ruse, or ploy, Massmart executives apparently really didn’t know about the Walmart offer in advance, if their most recent transactions are anything to go by. On the 31st of August, Grant Pattison disposed of 86,000 shares at R122 per, while Financial Director Guy Hayward got shot of 175,000 of the pretty things, for a total of R21.3millions. When it made its offer, Walmart, you might recall, was offering a substantially more princely R148 per share...

Comment:

More on that Wakro deal: while certain snide analysts have pointed out that the transaction represents a mere 2% of the value of the Walmart business, it is nevertheless the biggest deal The Mighty One has done in an emerging market, and is its biggest single overseas move since it bought Asda, no less, in 1999. It’s also a deal that Walmart sorely needs: the US is both straitened (in terms of consumer liquidity) and saturated (in terms of how many Walmarts there are) right now. Developed economies like Japan and Germany have traditionally been unkind to Walmart, not seeing the point of inexpensive things apparently, so Walmart is focusing its efforts on emerging places like Mexico, and indeed the great country of Africa. It is, of course, no news to readers that the transaction has met some stiff resistance from unionists, who have suggested that it will result in a transfer of cash to foreign investors and little meaningful growth or skills development at home.

Comment: Union resistance or no, hoarier heads than ours have predicted that the deal will stand, as a symbolically important bit of foreign direct investment at a time when the country needs it.

If successful, the Massmart/Walmart deal, which we are pleased to call “Wakro”, after the tradition of “TomKat” and “Brangelina”, will be signed and sealed in a brisk five months or perhaps a touch more. First off for Wakro, which is currently in the endearingly awkward “nonbinding offer” stage, is a two-to-three month due diligence, a process according to one insider of “counting stores and tins” to confirm publicly available information. For Walmart, a big drawcard is Massmart’s expanding footprint and sound strategy in Africa, with an expected surge in middle-income African households from 59million in 2010 to 128million by 2020. For Massmart, Walmart’s buying power and supply chain knowledge and infrastructure would have been interesting, with the Big Feller’s 4,110 stores in 14 countries outside the US. That, and a cracker of a price for shareholders – at R29.8billions for the business it is better than 10% per share on last Friday’s closing price, and the shares were already trading at a premium in anticipation of something like this happening. For suppliers, that supply chain expertise might prove a challenge initially: Walmart’s own systems are so efficient that suppliers in the US have a 30-second delivery window, with dire consequences for those who fail to make it.

Comment: So here it comes, at last. Massmart will be missed from the JSE, although the significant majority of its shareholders weren’t from these parts anyway. For more on this very important story look <a href="http://www.tradeintelligence.co.za/TradeProfiles/Massmart.aspx">here</a>.

Massmart has done a bit of soul searching, apparently, and found it within itself to continue stocking Shield Chemicals’ range of products for the snazzier motor. At issue, you will recall, was the small matter of some numbers on Shield’s BEE scorecard which could not be authenticated. Massmart, having done a check of Shield’s credentials, raised the flag, and Shield did some digging of its own, confirming the irregularity and promising a forensic audit. One Black Lite Consulting, in the meantime, has weighed in from left field to venture the opinion that the Shield case was one of fronting, which is apparently becoming more sophisticated these days. Massmart has said that it doesn’t want to endanger jobs at Shield by delisting, but will keep the business on its watch list until it meets the required standards.

Comment: Sensibly handled, that dark-suited feller.

More on those Massmart results. While at 0.1% operating profit was on the low side, some of the other indicators are very positive – trading space up 8.5%, with a total now of 288 stores, six having closed, 18 having opened and 20 having been acquired. Massbuild proved to be a star performer, with operating profit up an architectural 24.6% in an otherwise flat building market, and home improvement and general merchandise coming in strongly with sales up 15%.

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Massmart’s strong second half performance suggests that the SA consumer economy is out of the recession, reckons Grant Pattison, who has a growing sense of confidence that the worst is behind us. After two horrible years, the numbers are looking up, with total sales up 10% to R47 billion although operating profit increased a scant 0.1% to R2,031 million. Massmart’s R1 billion investment in growth has seen store space increasing by 8.5%, of which 3.1% is in new stores and 5.4% from acquisitions, while excellent control of expenses, margin and stock protected the income statement, enabling the Group to maintain operating profit. The World Cup generated an additional R200-300million of additional turnover, welcome in a tough year.

Comment: Hang in there, big guy.

In the grand tradition of AVI with their Jimmy Choos, diversified franchise crowd Taste Holdings, who own Scooters and Natal Wholesale Jewellers (NWJ) launched a premium jewellery store-within-a-store in various Makros in April this year. Was this a good thing? Was it heck, says Absa’s perennially grumpy analyst Chris Gilmour. Stick to your knitting, he reckons. If you do pizza, keep it pizza and don’t go all bling on the posse. And what is Makro doing selling posh trinkets? Aren’t they the big TVs and bigger bags of mealies crowd? NWJ, including Davidowns, is the only vertically integrated jewellery chain in the country, both manufacturing and selling its merchandise.

Comment: While Davidown’s must surely add a sparkly new dimension to the Makro offering, there are reports that the jeweller is not doing as well as had been hoped.

Massmart has identified an irregularity in Shield Chemicals’ BEE scorecard, possibly resulting in the car-care company losing shelf space on Massmart shelves and having to answer some awkward enquiries from other major retailers throughout the S of A. Shield is conducting a forensic investigation to determine how the scorecard slipped through the cracks, while (and here’s where the plot gets decidedly chewy) BEE verification agency, Emex Trust, is convinced that Shield has manufactured their very own documents… gripping stuff.

Comment:

Not hot news, exactly, rather one of those interesting illustrative items. Massmart has been operating elsewhere in Africa for 20 years and has 24 stores – all of them Games – in 11 countries, and intends to continue to open them at the current pace. These are stocked from South Africa, with, for example, Zambia receiving 5 containers a week brimful of goods sourced from 2,500 suppliers. The relevance? Africa is one hot ticket right now, just ask the Chinese. And things are hotting up among South Africa’s retailers there, too – Pick n Pay has finally thrown its cap into the ring and will be trundling down the well-worn track hacked from the virgin bush by Mr Basson with his pith helmet and bearers. And apart from stamina and bugspray, what all these jolly retail fellows are going to be needing is stonking great DCs back home to serve the African trade.

Comment: We’re having a little flutter on the boys who make forklifts and those giant metal shelf thingies, don’t know about you.

The story on the cover of last week’s FM, littered though it was with the spot-the-design mistakes so typical of business publications, was that some foreigners might be interested in some SA retailers, maybe. Or they might not. This as speculation about the Walmart takeover of Massmart (or indeed Shoprite) reaches a fevered drone. The real story, of course, as the splendid fellows over at Massmart so kindly point out, is that Massmart is already in foreign hands, just not big, hamburger-greasy Walmart ones. 60-70% of Massmart free-floating stock is currently owned by foreign investors, who have joined in the general excitement which has seen Massmart share price and P:E rising to historical highs of R122 and 24, respectively – in part, says Grant Pattison, because foreigners have until recently thought the Massmart share was too cheap.

Comment: No cautionary yet, either. Hmmm.

Massmart has successfully got the qualified go ahead from the granite-faced commissars of Namibia’s Competition Commission for their acquisition of the catchily-named Pupkewitz Megabuild chain of hardware emporia, an acquisition which builds on the recent success of the Massbuild Division here at home and plugs nicely into the Group’s strategy for expansion into Africa. Massmart is flying high at the mo: after some iffy interims, total sales for the Group are up 10.1% to R47.5billion for the year to June, with Massdiscounters performing particularly well. Massdiscounters you will recall is home to Game, 40 this week and still pretty in pink.

Comment: While numbers have been hard to come by, old man Pupkewitz himself has been heard to mutter that “when Harold Pupkewitz negotiates a deal he always walks out happy.”

Cheerfully-liveried Cambridge Meats, with its distinctive turquoise, yellow and yes, pink vans, is spearheading Massmart’s otherwise deadly serious charge into retail. The thinking is that food retailing is a resilient sector and the lower end is where the growth is, so what the heck, let’s open or buy 100 in the next five years. The Masscash division, where Cambridge is to be found, currently owns 22 retail stores under five regional brands, and the idea is that they’ll all be rebranded Cambridge by Christmas. Together, they’re worth a handsome and growing R2.5billion for Massmart every year. The typical Cambridge gives 50% of floor space to dry goods and 50% to perishables, which comprise around 30% in competitor stores. In the 52 weeks to June, by the way, Massmart lifted revenue by a handsome 10.1% to R47.5billions, with young Masscash outpacing Dad at a sprightly 14.5%.

Comment: Interesting times for the many independents in the sector as the Massmart boys ride into town.

Over the period of the World Cup, Massmart have seen an increase of 9–12% in the sales of food products and 7% in cold beverages. They are expecting sales of football-branded folding chairs to exceed 20,000, with blankets and seat pads each coming in at over the 2,000 mark. Which is what we call a result.

Comment:

SACCAWU has said that even if Massmart isn’t being bought by Walmart, it is behaving like the big-box Yankee union-basher, as the public standoff between the two over possible retrenchments at the Massdiscounters (Game and Dion) division enters week 3. Massmart, you will recall, has had the unspeakable arrogance to table proposals which would avoid over 50% of retrenchments that may result from changes in distribution.

Comment: We’re not big on union bashing ourselves, but SACCAWU’s recent efforts seem, shall we say, misguided.

Massdiscounters, the Game and Dion guys, are in the process of retrenching around 750 staff following restructuring at DCs which has meant that fewer receiving staff are needed in stores. Massdiscounters had proposed a restructured working week to SACCAWU, which would have seen hours reduced from 45 to 40, with 12 hour days during peak trading periods, but no retrenchments, according to sectoral guidelines on the subject. SACCAWU were not keen on this, and apparently became somewhat conspiratorial on the subject, suggesting that the move was part of a strategy to bust unions before the Walmart takeover.

Comment: Which, says Massmart, is not happening.

Currently SA’s most empowered retailer, and the 6th most empowered business on the JSE, Massmart has this year achieved its highest ever BEE rating, a level 4 rating of 66.12%, up from last year’s level 5 rating of 55.67%. The group increased its scores in the area of ownership (where it sits at 6.57%), employment equity (11.49%), skills development (10.36%), and preferential procurement, up by a supplier-challenging 4.7%). This according to Empowerdex, who will come and measure your business’ performance against the voluntary Codes of Good Practice of BBEEE, for a small consideration.

Comment: Good work, that big feller.

Who looks like a Walmart? Makro looks like a Walmart, that’s who. Not Shoprite, not Pick n Pay, and despite some buzz in that regard, not Trade Centre. Which puts Massmart ahead of the pack and pushing the buzzer just a fraction of a second earlier in that long-running primetime favourite Who Wants To Get Bought By Walmart? Or so the dabblers on the JSE seem to fancy, sending shares to a record high of R115.50 per as of last week, a trend currently being ridden by most of the majors.

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“Who?” you may ask, and you’d be wrong. Saverite is of course Massmart subsidiary Masscash’s newish franchise operation, and it has been busily rolling out stores since opening its first store in 2008. Currently there are around 50, and the plan is 175 by June 2012. Apart from a 1500m2 whopper – a failed SPAR – in George, most are 400m2 convenience retailers, positioned against KWIKSPARS in the market. They are served rather handily by Shield Wholesalers, with no minimum order, and buyers being able to pick and choose across the range. Interestingly, 16 of the outlets were acquired from Pick n Pay in its wind-down of the Score brand.

Comment: Massmart’s first real move into FMCG retail, and indeed franchise, an area which almost everyone is exploring these days.

After its toughest year since listing 10 years ago, Massmart nevertheless reported sales growth of 6.1% to R24billion for the six months to December, although comparable sales were down 0.3% and group operating profit declined by 15%. Makro took a surprising amount of strain for the period, with sales up only 1.5% and trading profit down 10.5%, due substantially to declining food inflation and deflation in general merchandise brought about by the strength of the rand, while the retail/cash & carry division Masscash fared somewhat better with sales up 13.6% and trading profit up 2.6%. Indications are that comparable sales are up by as much as 3.4% for January and February, suggesting that the worst could be over, with bullish noises being made in the upper echelons about a recovery to last year’s levels for the full year. Massmart believe that the great opportunity in a saturated market still lies in the under-served low end.

Comment: A view which those pleasing Masscash results seem to bear out.

Online shopping in South Africa, she’s not so big. Last year, etailers, as they are catchily known, raked in a mere R1.6billion, or just 1% of all available wonga. Why should this be? Clicks believe it’s all down to the heinous cost of broadband in this country and the relatively limited base of wired consumers, while Massmart believe the market simply doesn’t want online shopping to the same extent that more developed markets do. In China, for example, online now represent 1.9% of all retail sales while in the US it spiked to 4% over the festive season last year. Arthur Goldstuck, SA’s very own web guru (and you know he’s a guru because his shirts never have collars) believes that it’s mainly a case of retailers not knowing what to do online, and making their sites frustrating to use.

Comment: Stokvels. Now <em>there’s</em> a channel.

Massmart’s in yet another spot of bother with the competition boys, who have obviously never read The Art of War. At issue now are on-the-record comments by Chairman Mark Lamberti in minutes from a board meeting to the effect that the competition should not be allowed to flourish, and that margins might have to drop in order to fend the blighters off. These the Competition Tribunal has described as sinister, despite the fact that it has overruled the Competition Commission’s recommendation that a merger with PE wholesaler Finro be forbidden from proceeding, and to which the documents in question refer. The Tribunal also expressly states in its finding that Massmart is unlikely to engage in predatory behaviour, buying or squeezing out the competition until none is left.

Comment: What Lamberti should have said, obviously, is: “Gentlemen (and lady) it is imperative that we allow the competition to flourish to such an extent that they overrun our tillpoints and raze our office parks to the ground.”

Massmart are very responsibly, but not very cheerfully, looking at what might be coming their way over Christmas, and what, perhaps more to the point, might not. After 21 weeks, ending November 22, in which comparable sales fell 0.7%, they are asking the tricky questions – like to what extent will Christmas spending by the employed balance the lack thereof by the unemployed? How will food deflation make itself felt on the bottom line? And what will be the effect on sales of the ongoing consumer credit crunch? The difficulty this year has been in predicting sales, and the holiday season is proving no different. On the upside, Massmart have said that they are noticing the first glimmerings of a turnaround in home improvement and general merchandise, in both of which areas the group is more exposed than competitors like Shoprite.

Comment: Massmart’s transparency is refreshing in a business environment characterised by petty and often needless secrecy.

Massmart have become a sort of lightning rod for the toughness of the times, reporting sales growth of only 5% in the 14 weeks to 4 October, with like store sales just 0.7%. Compare this to Shoprite’s 15.9% growth in turnover for a similar period, and you can see why sweat might be beading on those youthful Massmart brows right now. The problem, it seems, is Massmart’s exposure to general merchandise relative to Shoprite’s more defensive positioning in food. Should the recession rage on, Massmart is expecting a decline in first-half profits for the 2010 financial year compared with the more buoyant first six months of 2009.

Comment: In fairness to Massmart, it’s been warning shareholders of this eventuality for close on a year now – the mark of a prudent and refreshingly realistic operation.

Plucky outsider KFC won the Grand Prix in this year’s Sunday Times Top Retail Brands Survey, would you believe it, with Edgars next and Shoprite blustering home in third, and Clicks in fifth, after non-retailer Spur, narrowly pipping Pick n Pay in sixth. In the Overall Grocery Shopping experience, however, it was Pick n Pay in pole, with Shoprite, Checkers, Woolies, Spar and Game screaming up the straight in that order. Game (first), Makro (third) and DionWired (fifth) delivered the goods for Massmart in the Electronics category, while Woolies Food Stops came in at a creditable third in the forecourts division.

Comment: Oddly enough, Pick n Pay came nowhere in the Favourite Family Restaurants category.

Massmart has mentioned that its shopping spree will continue next year, with half of its projected R760 bar Capex earmarked for acquisitions and new stores and the rest going on the maintenance of existing operations. According to CEO Grant Pattison, the plan is to acquire more large independent retailers serving the lower LSMs, and typically located around commuter hubs. Forthcoming additions include a new Game in Malawi in October 2010, and expects the store to contribute between R100-R200 million in annual sales. It is also looking at the DRC, Angola, Cote d’Ivoire, Rwanda and Senegal, and expanding its operations in Ghana and Nigeria.

Comment: So far, Massmart’s vehicle for a continental footprint has been Game, should it go hybrid on the continent, it will be placing itself more obviously in competition with Shoprite.