Massmart tries luck in Nigeria
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MASSMART is taking on Shoprite elsewhere in Africa in food retailing, launching a pilot project in Nigeria and planning at least 10 such stores in the next two years in Lagos.
Africa’s second-biggest distributor of consumer goods hopes to draw on the expertise of its largest shareholder, Walmart, to help it set up distribution and logistics operations as it extends its food offering north of South Africa.
Based on the outcome in Lagos, Massmart will flex its muscles and move from a pilot phase of opening small-format stores to an aggressive roll-out.
Massmart’s grand plan is to offset lower sales of items such as computers and fridges by expanding in food and clothing.
The food market further north is largely informal, and Massmart’s strategy is more about taking business away from spaza shops than from formal retailers.
“Shoprite was first and we’re second, but with the power of Walmart we hope to overtake them,” said Massmart CEO Grant Pattison.
The retailer expanded into food in South Africa only at the beginning of 2011, and for the latest financial year food sales were R13bn (up from R10bn a year ago), yielding a local market share of about 4% in food.
Afrifocus retailing analyst Alec Abraham said he was surprised by how well Massmart had fared in food, given that it was a latecomer.
He said Massmart’s business model lent itself to the high-volume, low-margin retailing that worked in Africa. He questioned how long it would take Massmart to find the right format and establish distribution lines because it lacked the experience of Shoprite.
“I think Massmart will have to pay school fees to get the right formula. They don’t have the experience that Shoprite does, and I don’t know if Walmart’s experience can help there. And it still has to set up distribution.”
Massmart plans to develop its own shopping centres in Africa because of ever-increasing rent increases and developments not coming on stream as quickly as required. Massmart stores will have a smaller format than those of Shoprite outside of South Africa. At the moment, Africa contributes only about 9% to Massmart’s turnover.
Its sales outside South Africa rose 16.6% for the 53 weeks to December 29, bolstered by a weaker rand, and contributed 7.7% to total sales. Group sales rose 9.8% to R72.2bn for the 53 weeks to December 29 last year. For the 52-week period, total sales growth was 7.5% and comparable sales growth 3.8%.
The new year is looking more upbeat. Sales climbed 9.5% for the eight weeks to February 23, though the recent interest-rate hike will make life more difficult for middle-income customers.
This article was first published in Sunday Times: Business Times
Courtesy of Adele Shevel