RetailAnalysis
18 April 2017
Massmart remains positive on expansion

After following a strict strategy to increase profits, Massmart's chairman, Kuseni Dlamini, in an interview with African Business, has announced that the retailer remains positive about the future and is considering further expansion opportunities.

Strategy focused on driving profitability

Dlamini said that Massmart has focused on driving profitability throughout its operations, operating a 'back-to-basics' strategy. He said the initiatives put in place have led to a recent positive performance, with operating profits rising by 15.5%. To generate this result he said Massmart had;

A. Operated strict finances

  • Shut unprofitable stores
  • Minimised expenses
  • Reduced store rental fees
  • Lowered travel costs
  • Brought supply costs under control
B. Looked after customers and offered value for money
  • New product lines have boosted the food business and attracted new shoppers
C. Having a diverse profile offering groceries, home improvements and general merchandise

Expansion to remain 'slow and steady'...

Dlamini went on to discuss that as Massmart considers future expansion, that this would continue to be slow and steady, to ensure profitability. To this end it will;

  • Look at the markets they are not in
  • Rank them subject to investment criteria
  • Choose to invest in the countries that rank best at the appropriate time

Many believed Walmart's acquisition of Massmart would see the latter increase the pace of expansion across sub-Saharan Africa. However, this has not been the case, with larger scale expansion from competitors, such as Shoprite and Pick n Pay. Dlamini said that Massmart's belief in ensuring that its expansion policies are always informed by fact and evidence will help it to continue to be profitable.

Despite challenges Massmart plans to open a further 70 stores to bring its total to 470, from about 400 at the end of its 2016 financial year. It has not been announced what countries this expansion will be in, but Dlamini said its ambitions are pan-African. A cornerstone to this expansion will Builders Warehouse, which Massmart believes will continue to benefit from the region's on-going industrialisation and urbanisation. These trends will lead to an increase in infrastructure and people looking to improve their homes.

...Given challenging marketplace

The sub-Saharan marketplace remains a challenging place to operate in due to the dominance of the informal and traditional channels and the need to invest heavily in real estate and supply chains. Cross border trade is costly. Intro-African trade costs are around 50% higher than East Asia (according to the World Bank). Local sourcing can offer more savings and this is something that Massmart has been doing more of.

Despite these challenges Dlamini remains positive about the long-term trends of population growth, urbanisation and an emerging middle class. This will be influential both in the retailer's home market of South Africa and across the region.

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