Kuseni Dlamini, the Non-Executive Director of Massmart + Walmart, on retail tech and trends in Africa.

What is the future of retail in Africa? 
The African retail market is very robust and dynamic with a massive opportunity for growth. We have seen the rise of urbanization and industrialization in African economies, with the diversification of these economies, moving away from your traditional industries such as mining and agriculture, to other services such as ICT, so that the retail sector may thrive.
Consumer spending is projected to reach $860 billion by 2020 and increase to approximately a trillion by 2025. So you could say it is doing well… as people’s disposable income increases. That sets the basis for the retail industry to grow. The penetration of formal retail in Africa is still very low, in some markets such as Nigeria, the [informal] retail industry still accounts for 80% [of the economy], so there lies a huge opportunity for retailers such as Massmart to come in and establish their shops, playing a role in the formalization and modernization of the retail industry. Even though the informal sector of the retail industry is still an opportunity, we are still the largest wholesaler in Africa that has informal traders, kiosks and spaza shops that are still our customers. They come to us for their stock to sell to their customers. It is a win-win partnership we have with them across Africa.
Are robots now being incorporated in the retail industry? 
The digitalization of the retail industry is a way to better serve our customers. Consumers are increasingly time-poor, they are constantly looking for convenience, they want retailers to innovate and offer them the best service in the most convenient way to their lifestyles, so that requires us to constantly be innovative as we are moving into the online space.
Our online sales across our four divisions – Game, Builders Warehouse, DionWired and Makro – increased by 47%. That is the direction retail is headed globally. It is moving towards the omni-channel space, where it won’t just be bricks and mortar alone. We also don’t believe that it will move to the other extreme, where it would just be online [service].
How does African retail compare to the world? 
The retail industry in South Africa has always actively tried to be plugged-in to global retail best practices. Even before Massmart became part of Walmart, we have always benched-marked our business practices and offerings against the best retailer in the world. So there is a high level of sophistication in the South African retail industry. Our retail market is not in isolation, they are aware of what is happening in other countries such as Europe and Asia in terms of new thinking and new practices, we are at the cutting-edge. Though we are not far behind, there are opportunities to scale up and drive innovation, be proactive to customers’ changing needs and expectations. Customers are demanding high quality and retailers need to be responsive to that.
What is the future of Massmart in Africa? 
In the next three years, Massmart is looking at increasing its trading space by 35.6% and we believe that will position us to take advantage of the opportunities available from medium to long term. We also believe that partnering with local suppliers is vital to our success. We have a supplier development fund with which we are supporting 33 businesses and those businesses have helped us distribute imports as they have also enabled our suppliers to also export their goods to parts of the country. We also invest in black-owned as well as women businesses that can become part of our supply chain at a local and regional level to a global level.
How do you develop upcoming retailers? 
It is important for us because they are our retailers, if they succeed in their businesses, it means that they will continue to buy from us and sell to their customers. We need to build an inclusive economy in South Africa. We need small and medium enterprises to have a space in the economy. It can’t just be the dominance of the big retailers.

Kuseni-Dlamini-595

‘Moving Towards Omni-Channel’

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 &amp; 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.

Tag: Massmart

FORBES AFRICA SOCIAL MEDIA

‘Moving Towards Omni-Channel’

What Were We Worried About?