What Were We Worried About?

The Walmart/Massmart transaction unleashed fierce public debate. Fears about the ‘Walmart effect’ were everywhere: falling prices killing local suppliers, job losses and a squeeze on the unions.

Grant Pattison, the former CEO of Massmart, did not see it coming.

“In none of the scenarios did we identify that, one, government would take a negative view; two, that they would take that negative view through the competition authorities.”

When it came to employment issues, Pattison did not foresee obstacles because retrenchments were not on the cards and he had assured government and organized labor that the company would continue to meet its obligations under South Africa’s labor laws. He does not think he could have done anything differently.

The Competition Commissioner, Tembinkosi Bonakele, who was deputy at the time of the transaction, has a different view. In a dissertation submitted to the University of Pretoria, he argues that the companies’ stakeholder management was poor in the run-up to the transaction. He places much of the blame on Walmart, for not having a clear communications strategy and relying too heavily on Massmart. At the competition hearings, Walmart was adamant that it left key decisions to Massmart, and would not be drawn into questions about its reputation in the United States.

Massmart encountered more hurdles. After the Competition Tribunal had cleared the merger, with conditions, the South African Commercial, Catering and Allied Workers Union (Saccawu) took the matter to the Competition Appeal Court. In South African law, the authorities are required to examine the effect that a merger has on employment, often placing a cap on merger-related retrenchments. The appeal court imposed stricter conditions on the transaction; including the reinstatement of workers that Massmart had retrenched before Walmart’s announcement of the deal.

The implementation of this condition is contested. At the time of writing, Massmart and the union differed on whether the order to reinstate workers had been fulfilled.

On the other side of the coin, in the last three years, Massmart pushed ahead with expanding its grocery shops at the lower end of the market and increased fresh produce. It also bought shops such as The Fruitspot, a fresh produce processor, and Rhino Cash & Carry, a small grocery store chain.

At the Tribunal, Massmart estimated that store expansion between 2011 and 2013 would create 6,403 jobs. The company claims 7,795 additional jobs were created in that time.

What of those hopes and fears, debated so passionately before competition adjudicators?

Firstly, price. Massmart’s annual reports indicate that estimated product inflation within the group is below consumer inflation, but this was so even before the transaction. There have been no dramatic price reductions, though Massmart’s entry into grocery retail with Cambridge Food has shaken up the lower end of the market. Levels of unionization remain the same as before. The number of employees with medical benefits are reported to have increased from 41% in 2010 to 54% in 2013. The average monthly minimum wage has increased from  $201 in 2009 to  $253 in 2013, in line with consumer inflation, though poorer employees are likely to have struggled to make ends meet. The flexible workforce has increased from 33% to 38%.

Secondly, trepidation. The big fear was that South African suppliers would be forced out by Walmart’s clout. Pattison says that this pressure had already been dealt with in the early 2000s. South African retailers know their way around China, Malaysia and Vietnam and are better at this than Americans; who have had the luxury of being courted by manufacturers from those countries.

Guided by two reports from economists, the Competition Appeal Court ordered Walmart-controlled Massmart to form a fund to help suppliers. One report, produced by Nobel laureate Joseph Stiglitz and James Hodge, had argued that any amount short of $47 million will almost surely fail. The court ordered the creation of a $22 million fund to limit the risks of the transaction.

The fund offers loans, grants, technical support and training. More than $1.5 million has been spent on farmers. Since 2012, smallholders have sold around $700,000 of food. It is reported that 645 seasonal jobs have been created by farmers. Less than $94,000 of the $9.1 million has been granted to manufacturers.

While a lot of the angst over the Walmart/Massmart deal has been lifted, there is still a long way to go before everyone is happy.