Last week the news broke about Walmart opening a handful of stores around South Africa before the end of this year. I actually thought this was old news but apparently it had not been officially released to the press yet. We are suppliers so I just presumed everyone else knew already.
Walmart has been present in South Africa in another form having invested in Massmart as a minor share holder before becoming the major shareholder after getting involved hands on in the day to day running of the businesses. Massmart has Makro's stores which are similar to what is an American type Walmart with the big difference Makro does not have a major food section and is roughly only 25% of the store. A Walmart store in the US will be the complete opposite with 75% food and 25% hardware, toys, clothing, sports and electronics.
Massmart has also got Game and Builders Warehouse stores under it's umbrella and they have tried selling food in Game over the last 10 years unsuccessfully. Game has been the one part of the business that has been on the slide and it just comes across as a dated, cheap retailer that is stuck in ideas that are 30 years old.
Walmart have obviously been frustrated with the results thus far and cannot really move forward with the stores they have in the group so it makes sense to open the proper traditional Walmart store. This will add market share immediately to the entire group of retailers they own whilst adding their huge buying power to the mix.
This is where I see the profitability of the Massmart Group changing as by getting rid of the current buyers handling 3 separate retailers you could have one buyer per category covering all the various stores. All one would need is one buyer and a team of planners and this would streamline the head office work force creating savings from day one. This for some reason was never implemented years ago when Walmart became involved and I guess they were either unsure or not ready to make the commitment required. Opening their own branded Walmart stores does change things as that is going to take on the local chain store food retailers head on.
The 3 big food retailers in SA being Pick'n Pay, Shoprite Checkers and Spar are in for a shake up because they have never faced a new competitor this size before. I expect Walmart to do very well and to put the top 3 under pressure as one of them has already had to restructure their business recently and this could be a hammer blow whilst they are still weak. Walmart obviously smells blood otherwise they would not be moving forward so quickly.
The 4 or 5 stores opening in SA will give them a foot hold into Africa and knowing how quickly Walmart move they will have done studies of which countries are next. They will use the current distribution centers they already have with Massmart so the cost of expansion will be diluted and far less than starting fresh.
I do think the locals will shop here even if they are anti American due to the tariffs and job losses which are still filtering through and only expected to fully impact next year. Prices is what is going to get shoppers through the door besides the curiosity with many having heard of Walmart, but have never travelled out the country. This will be interesting to see how this unfolds over the next 12 months and from a personal note will know through the sale of our products.
