Massmart, Walmart’s South African subsidiary, is reviewing its operations outside the Southern African region as CEO Mitchell Slape continues with his turnaround plan. The company, which operates in 13 countries, has a small presence in Ghana, Nigeria, Kenya, Tanzania and Uganda.
Massmart has also appointed Barclays South Africa to help sell its Cambridge Food, Rhino and Fruitspot stores. These are part of its Masscash wholesale division, which operates with cash and carry food and cosmetics businesses, and also with retail food outlets which target the lower income consumers.
“It’s important for Massmart to focus on those businesses where we have established clear market leadership and in the case of Cambridge and Rhino and retail food in general our market share is relatively small” – CEO Mitchell Slape
The review of Massmart’s operations outside the Southern Region is a long time coming. Former CEO Guy Hayward pushed out mixed messages about international expansion. In 2017 he signalled lukewarm support for international expansion. But in 2018 he intimated Massmart would start looking at francophone West African markets.
Massmart’s problem is that its discounter model relies on sourcing via South Africa, which means a complicated and expensive supply chain for servicing more distant markets. In Ghana, Nigeria, Kenya and Uganda its Game format hasn’t resonated with customers as a price leader (because it doesn’t exhibit price leadership) and the high cost to service these new markets has impacted their profitability.
For a long time, Massmart’s expansion stagnated. It has stopped growing in Nigeria, but through 2018 and 2019 did open new stores in Ghana and Kenya. Altogether it has just 14 Game stores across these five countries. It also has a Builders Warehouse DIY store in Kenya which opened in 2020.
Where is vulnerable?
Massmart’s two weakest markets are Uganda and Tanzania, where the retailer has just one store each. We think it is a given that Massmart will exit Tanzania, a notable graveyard for multinational supermarket chains. Given the strength of Shoprite in Uganda and Majid Al Futtaim’s (Carrefour) plans to open several stores in the country (it opened its second store today), Massmart’s Game looks outgunned and isolated.
Kenya is harder to predict. Shoprite is in the process of exiting. Choppies is exiting. Tuskys has collapsed. Massmart’s launch of a new store there has happened under Slape’s leadership and we think it more likely he will continue in Kenya.
In Nigeria, where Massmart has failed to grow its store network for years and where there are logistics difficulties, it is hard to access to fx and South African brands are not well liked, Slape may well elect to close stores for now. Massmart’s new head of ecommerce, (Theodore) Sylvester John has significant Nigeria experience but it may not be enough to convince Slape to continue to devote resources to supporting just five stores.
In Ghana, Massmart has expanded its store network to four stores but not opened any new outlets since Slape became CEO in September 2019. Pick n Pay’s long planned entry into both Ghana and Nigeria has been either postponed or cancelled and while Ghana’s operating environment and immediate economic growth is more inviting than Nigeria’s, strategically it is unclear whether Massmart really needs to be there at a time when it has to focus more attention on its loss of market share in South Africa.
Massmart continues to lose money and owner Walmart is demanding tough medicine. It is possible that Massmart may exit all its expansion markets outside Southern Africa. Whichever way it decides, it cannot continue to support a handful of stores across most of its 13 markets. It needs to find a connection with consumers that fulfils its proposition as a value-led discounter. It also needs to either scale or exit in its expansion markets.