Massmart is set to be taken over by Walmart, the US retail giant. Walmart already owns 53% of the company, having acquired a 51% stake in Massmart Holdings in 2011 for R17bn billion ($2.4bn) and since converted a loan to Massmart into equity. Since then, Massmart has suffered a number of issues: an expensive and unspectacular expansion into East and West Africa, poor trading performance in South Africa, slow development of its ecommerce capabiities and cash flow issues resulting from COVID-19 lockdowns’ impact on business.
Realistically, something had to change. Trusted Walmart executive Mitch Slape was parachuted into Massmart in 2019 to enact a major turnaround strategy. That has resulted in Massmart announcing it would exit some of its expansion markets, close down its Dion Wired electricals stores, sell its Cambridge Food, Rhino and Massfresh assets to rival Shoprite, and focus more on ecommerce.
The result of that intervention is that rather than exiting – an option that Walmart could have chosen – Walmart is doubling down on Massmart. By Walmart’s standards, it is a minor investment. The South African rand is also trading at record lows to the dollar and Massmart is worth considerably less than it was in 2011. Walmart’s bid will cost R6.4bn ($378m) for the remaining 47% of Massmart it does not own.
Separately, Massmart has also announced that Jonathan Molapo will succeed Mitch Slape as CEO from 1st January 2023. Molapo is Massmart’s Chief Operating Officer currently.
There are signs that Massmart is recovering. From a low base, online sales volumes grew by 50.0% for the 26 weeks to 26 June 2022, compared to the same period last year. Cash flow has improved. But profit margins are still under severe threat from inflationary pressures and a squeeze on consumer incomes in South Africa.
At a time when many South Africans feel that the country needs new political direction to provide solutions to ongoing problems like a stagnation in living standards for the majority of the population, and recurring issues such as load shedding and outages on the national electricity grid, Walmart is taking a bet that it can shape Massmart’s recovery and give it new direction.
It will need this focus: Massmart has been left behind by competitors such as Shoprite, Pick n Pay and Spar. All have had more focused store network strategies, more innovative ecommerce development and a stronger focus on being the price leader. It has left Massmart in no man’s land: facing competition from Takealot (and now Amazon) as South Africa’s leading general merchandise retailer while unable to enforce its credentials as a discounter in the grocery sector.
The acquisition will see Massmart delisted from the JSE and become a private company, which will also enable Walmart to restructure the business in a less visible and potentially more aggressive way. Massmart’s board has said that the deal will “help Walmart put further intervention operationally and significant additional financial investment”.
