South Africa’s Massmart is growing its presence on the continent with new stores coming from its fantastic range of brands. The hope is that these stores will bolster the impressive sales figures that have been realised over the past 12 months.
2016 looks set to be an interesting time for the retail industry on the African continent and especially in South Africa, where the big names are all starting to look north to build on their successes while growth in their local markets begins to slow.
PwC, the largest professional services company in the world, released a report in 2012 covering the outlook for the South African retail and consumer products industry for the period 2012-2016, and even back then it was being predicted that 2016 would be a challenging year for the sector.
“With slow GDP growth, high unemployment and structural shortcomings in the economy persisting, overall growth for the forecast period is expected to be modest, if not fragile. In particular, retail and consumer products companies must contend with limited volume growth, increasing costs and falling prices,” commented the report’s authors, Diederik Fouche and John Wilkinson.
But even with the pressures of a dull economy, the sector was still receiving positive predictions; “…in 2011, the country’s aggregate retail sales surpassed a trillion rand for the first time in history, and are likely to hit R1.46tr by 2016,” the PwC report claimed.
But now that we’re here, there seems to be a bit of worry still surrounding the industry. The economy is expected to perform badly, the exchange rate is making things difficult and business confidence is at worryingly low levels.
Fortunately, there are some organisations that are managing to make the most of the situation and continue developing and growing, despite what the economists say.
Massmart is the perfect example. The company is a managed portfolio of four divisions, each focused on high-volume, low-margin, low-cost distribution of mainly branded consumer goods for cash, through 400 stores in 13 countries in sub-Saharan Africa.
The company operates four business divisions in a wholesale retail format: Massdiscounters, Masswarehouse, Massbuild and Masscash. Even with many reports suggesting that the country’s credit rating is heading towards junk status because of the economic climate, Massmart has managed to continue growing sales and expanding its continental footprint.
9.1% SALES GROWTH
In August last year, just as the new Finance Minister was settling in and realising the size of the task in front of him, Massmart was announcing positive results.
Game, Builders Warehouse, Makro, Liquorland, CBW, DionWired, Jumbo Cash & Carry, Cambridge Food and Saverite Supermarket are just some of the main brands that operate under the Massmart umbrella and perhaps the most well-recognised Game, Builders Warehouse and Makro all continued to perform well last year. The company stated that effective margin management and robust expense control keeps expense growth below sales growth.
For the six months ending June 28 2015, Massmart reported a total sales increase of 9.1%, while comparable sales increased by 6.9% with product inflation at 3.7%, suggesting good volume growth. Group operating profit, excluding foreign exchange movements and interest, grew by a satisfactory 12.7% given the soft economic environment.
“Despite the constrained consumer environment, Massmart sales remained resilient during the period,” said CEO, Guy Hayward. “We are pleased with the effective margin management and robust expense control which allowed us to keep expense growth below our sales growth, particularly in an environment where all participants are competing keenly for profitability and market share. The intense retail competition, however, is good news for consumers.”
After rolling out food products in Game stores, Massmart has seen a positive effect on the same of general merchandise.
“Food comparable sales’ growth remains strong at 14.1% and our customer research has shown that 20% of Game customers regard Game as a food destination and the majority of these food customers cross-shop the Group’s general merchandise categories,” Hayward said.
In January 2016, it was reported that Massmart had grown its sales again at the end of 2015, by 8.4%, to R84.7 billion. Its full results are expected on February 25th.
Like the other big retailers in South Africa, continental growth has long been a target for Massmart and it has secured a strong presence in Africa, especially in sub-Saharan Africa, in the past few years.
In 2015, two of Massmart’s strongest brands bolstered their African presence. Hayward said: “We remain excited about the long-term growth opportunity across several African countries and will continue with a patient and measured approach.”
WHOLESALE GROWTH IN AFRICA
In May 2015, Massmart opened its first Game store in Kenya, in Nairobi at the Garden City Mall. The 5000m2 modern store is designed to suit even the most discerning shopper but also offer quality branded product ranges that will suit every customer’s budget.
“We are pleased to see that the nation of Kenya has already shown us a warm welcome through the generous support we have received in setting up our store. We can guarantee that our new store in Nairobi will offer our customers our signature shopping experience of pleasure, convenience and unbeatable value,” said Game’s Marketing and Customer Director, Mark Turner.
“Game’s value for money concept of discount retailing, which has earned the group a loyal customer base across Africa, will dramatically expand the shopping options that have been available to consumers in Kenya before now,” he added.
Later in 2015, in November, Massmart announced the opening of the first Builders Warehouse store in Zambia, in Lusaka.
The new store at the East Park Shopping Mall was the sixth outside of SA and the 39thin total.
“We are delighted to bring our Builders format to Zambia and are excited by the opportunity to create jobs. We have been looking forward to bringing our customers in Lusaka the best choice at the most competitive prices possible, while offering the signature Builders shopping experience,” explained Africa Director for Builders, Karen Ferrini.
It is also expected that Massmart will make moves in the near future into oil-rich Angola. The company hinted at these plans back in 2014 but nothing is yet to materialise.
If rumours are anything to go by then you might expect Massmart to also explore West African countries such as Senegal and Cameroon.
And then there’s the investment into e-commerce, something which Massmart has been investigating for some time. While, according to PwC, e-commerce remains a niche part of the retail mix in South Africa but it is rapidly expanding hence the interest from the big companies.
These strategies could help Massmart grow further in what looks set to be a very tough year and take steps towards realising its vision of achieving continual improvement of performance in the portfolio; becoming the first choice for the market while developing strong relationships with suppliers, investors and the communities in which it operates.