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 Despite its powerful U.S. backer, South Africa's number three
retailer, selling everything from food to electronics, has added
fewer than 10 stores to the existing 25 outside its home market
since 2010, lagging rival Shoprite, which doubled its outlets to
300.
Massmart's slow inroads into the rest of the continent, touted as
the next big growth area, highlight the challenges of doing business
in Africa, and raise questions about Wal-Mart's goal of rapid
expansion abroad.
"From the start the Africa Rising story was a bit euphoric when
looking at it from a retail point of view, and Wal-Mart is now
facing the reality," said Boris Planer, analyst at London's Planet
Retail.
South Africa's Shoprite, which many investors expected to be a
casualty of Wal-Mart's investment in Massmart, has nevertheless
pushed ahead in familiar local markets where the U.S. retail giant
has moved more cautiously.
"If you want extra growth, you've got to take on that extra risk,"
said Wayne McCurrie, a fund manager at Momentum Wealth in Pretoria.
"Recognising that risk, by that I mean a severe shortage of shopping
infrastructure, Shoprite started setting up warehouses and
partnering with developers to build shopping centres and that's why
it is in this quick store rollout phase whereas Massmart is a little
bit behind."
Guy Hayward, an accountant who took over as Massmart CEO a year ago,
acknowledges the need to catch up with Shoprite, whose CEO cheekily
asked in 2013: "Where is Wal-Mart?"
"We all face challenges but Shoprite has done a good job in getting
ahead," he told Reuters.
Wal-Mart's slow progress in Africa also underscores the struggles
the U.S. company faces in pursuing a rapid expansion to 27 countries
and 6,300 stores outside the U.S. market.
Scott Mushkin, who covers Wal-Mart at Wolfe Research, has argued
Wal-Mart should look to exit markets in Asia, Europe and Africa due
to lower returns than in the Americas. “We believe these operations
are a distraction from what appears to be a fairly synergistic
operating model from Canada to Chile,” he wrote in a note to clients
this month.
Wal-Mart said it was still committed to Africa.
"We are excited by the retail opportunities in Africa and we’re
confident in the ability of Massmart’s leadership to drive future
growth," said Marilee McInnis, director of International Corporate
Affairs at Walmart.
FAILED DEALS
The last five years in Africa have been punctuated, for Massmart, by
deals that failed to come off.
Grant Pattison, who abruptly resigned last year as chief executive,
tried and failed to buy Botswana's biggest grocer Choppies
Enterprises <CHOPP.BT>, Ramachandran Ottapathu, Choppies CEO told
Reuters. In Kenya, Massmart was unable to complete a deal with
private retailer Naivas because of a family dispute over its
ownership.
At home, too, some customers are underwhelmed by Massmart's
performance. Famed for its aggressive pricing, it appears to be
struggling to compete with Shoprite on cheap groceries.
"I was very excited when I heard Wal-Mart is bringing low prices to
South Africa but I haven't seen that," said Themba Khumalo, a
31-year old bank teller outside a Johannesburg shopping mall.
Wal-Mart has also had problems in its bid to fast-track the
expansion of Massmart's grocery unit Game. Massmart has complained
to the competition watchdog against three rivals over shopping mall
leases that prevent Game from selling groceries.
AFRICA RISING
Wal-Mart, and other international companies, want to benefit from a
continent poised for dynamic growth fuelled by a rising young
population of workers and consumers and global demand for its
commodities, an idea known as 'Africa Rising'.
There are promising signs for retailers: Shoprite's Basson reported
"insatiable" demand for big brands after five Shoprite stores in
Angola sold more Red Bull cans than nearly all 400 stores in South
Africa in one year.
But others are also finding it tough. Woolworths, a Cape Town-based
upscale retailer, pulled the plug on its Nigerian business, citing
high rents and duties.
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The Spar Group, which runs franchise grocery stores, said its
partner in Nigeria has managed to open just five of 20 planned
stores, having struggled to find suitable real estate and having to
import everything from lighting and tiles to refrigerators.
Pick n Pay, South Africa's third biggest grocer by value, recently
shut its franchise stores in Mozambique and Mauritius because they
were not profitable.
"Retail in Africa is just not that romantic, it's not easy. Anything
that looks like an overnight success has probably been around for 20
years," said Pick n Pay Chief Executive Richard Brasher, while
stressing the group is still seeking to expand.
A common complaint is the time it takes to get goods from ports to
shelves.
"Even if you air-freight the goods and you think within a week your
goods could be in store, it may take five weeks," said Ronnie Steyn,
chief financial officer of TFG, the biggest reseller of Nike Inc and
Adidas AG products in South Africa.
France's Carrefour, the world's second biggest retailer by sales,
has taken a cautious approach. It has focused on China and Brazil as
its key markets for expansion, while opting in Africa for franchise
deals with strong local connections.
"Going into Africa is still a little bit adventurous in a way,
compared to, for example, Asia, which has mega-cities and plenty of
shopping malls," said Marieke Witjes, a retail consultant at AT
Kearney in Johannesburg.
"That's why a lot of international players are still kind of fearful
about putting their money into Africa."
SPACE SHORTAGE
Hayward said Massmart remained committed to expanding further into
the rest of Africa but cited the familiar list of challenges,
including haphazard property laws and poor infrastructure.
Among the biggest is the shortage of real estate space and big
malls, something that prompted Shoprite to raise 3 billion rand
three years ago to team up with developers to build its own
stand-alone stores in markets such as Nigeria.
"Do I advise my clients to stay away from Africa given Wal-Mart's
experience? No. Do I advise them to wait until there are enough
shopping malls in countries like Nigeria to build critical mass?
Yes," said one retail consultant in Johannesburg, who declined to be
named.
Hayward said Massmart has started setting up its own stand-alone
stores and was also considering partnering with landlords on
building properties.
The strategy would help Massmart open 19 stores in several African
countries by the end of February next year, and increase its trading
space by more than 45 percent, he said.
Gabriel Sacks, investment manager at Scottish-based Aberdeen Asset
Management, the third largest shareholder in Massmart with more than
4 percent, is prepared to be patient.
"Whilst we appreciate the market's frustration with the pace of
growth, we are of the view that a more cautious approach to rolling
out stores in Africa is no bad thing given our preference for
capital discipline," Sacks said.
"Faster growth would be welcome, but not at all costs."
(Additional reporting by Emma Thomasson in Berlin, Dominique Vidalon
in Paris and Nathan Layne in Chicago; editing by Anna Willard)
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