- Posted by: Julien Garcier
- Categories: SagaRetail, Supermarkets
Having taken stock of the business since his appointment as CEO in September 2019, former Walmart executive Mitch Slape has unveiled his plan to right listing South African retailer Massmart (in which Walmart holds a majority stake). He is planning to streamline the business by reducing it from four to two operational units, shift the balance of merchandise in its Game stores away from fresh and frozen foods towards more profitable categories, and place more emphasis on customer service.
During the 52 weeks to December 29, 2019, Massmart’s Rest of Africa (i.e. sub-Saharan) sales increased by 6.4% in rand-denominated terms and 5.5% in constant-currency terms. Comparable-store or same-store sales rose by 2.9% and 2.1% in rand-denominated and constant-currency terms, respectively. Outside of South Africa, Massmart operates almost 50 stores under the Game, Massdiscounters, Masswarehouse, Massbuild, and Masscash banners in 12 SSA countries.
At the beginning of February, Massmart’s four business units (Masscash, Masswarehouse, Massbuild, and Massdiscounters) were consolidated into two: Massmart Retail (which comprises the Builders, Game, Dion-Wired, and Cambridge Food banners) and Massmart Wholesale (Makro, Shield, and the Jumbo and Rhino cash and carry brands). It also plans to close 34 stores in South Africa.
According to Massmart, “The anticipated benefits of the re-organisation include unlocking brand synergies, delivering bespoke retail and wholesale customer focus, driving market agility and effective execution, leveraging group-wide procurement scale, and harmonising group-wide functional practice in line with best retail practises.”
Speaking to South African website BusinessTech, Massmart corporate reputation manager Michelle Kemp noted that Game stores would be “phasing out categories that have not been successful, such as fresh and frozen food.” She added that the chain would shift its focus to such categories as baby care, clothing, and groceries.
According to Kemp, “We have already started with a big focus on improving customer service, which is based on the Walmart happy-to-Help programme … 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.”
The Sagaci Retail View: SSA markets are very different from South Africa, so Massmart will not necessarily follow a similar strategy in both. SSA consumers have, on average, significantly less discretionary income than their South African peers, so food and other FMCG are a more important driver of foot traffic in SSA stores.
Massmart has recognised this and has been increasing the space it devotes to FMCG in its most recent openings. But its efforts to increase its market share in FMCG are not helped by the fact that Game stores in SSA are frequently located in the same malls as Shoprite supermarkets.
At the moment, Game stores in SSA offer a relatively limited range of fresh food in comparison with their supermarket rivals, and Massmart lacks the economies of scale required to compete effectively in this segment. Meanwhile, many supermarket chains in such markets as Kenya are currently expanding, rather than reducing, their fresh food offer.
To effectively compete in SSA grocery retail, Massmart needs to do something different, like bringing one of its cash-and-carry banners to such markets as Kenya. However, a strategic shift in SSA will be difficult to achieve at a time when management is preoccupied with a major restructuring effort in its domestic market.
To read Massmart’s full trading update in full, click here