Wal-Mart makes slow progress navigating Africa’s challenges

When Wal-Mart Stores Inc spent $2.4 billion on a stake in South Africa’s Massmart five years ago, the world’s biggest retailer said it was buying a gateway to high-growth markets in sub-Saharan Africa.

Massmart’s slow inroads into the rest of the continent, touted as the next big growth area, highlight the challenges of doing business in Africa, and raise questions about Wal-Mart’s goal of rapid expansion abroad.

“From the start the Africa Rising story was a bit euphoric when looking at it from a retail point of view, and Wal-Mart is now facing the reality,” said Boris Planer, analyst at London’s Planet Retail.

South Africa’s Shoprite, which many investors expected to be a casualty of Wal-Mart’s investment in Massmart, has nevertheless pushed ahead in familiar local markets where the U.S. retail giant has moved more cautiously.

“If you want extra growth, you’ve got to take on that extra risk,” said Wayne McCurrie, a fund manager at Momentum Wealth in Pretoria.

The last five years in Africa have been punctuated, for Massmart, by deals that failed to come off.

Grant Pattison, who abruptly resigned last year as chief executive, tried and failed to buy Botswana’s biggest grocer Choppies Enterprises, Ramachandran Ottapathu, Choppies CEO told Reuters. In Kenya, Massmart was unable to complete a deal with private retailer Naivas because of a family dispute over its ownership.

Wal-Mart has also had problems in its bid to fast-track the expansion of Massmart’s grocery unit Game. Massmart has complained to the competition watchdog against three rivals over shopping mall leases that prevent Game from selling groceries.

“Retail in Africa is just not that romantic, it’s not easy. Anything that looks like an overnight success has probably been around for 20 years,” said Pick n Pay Chief Executive Richard Brasher, while stressing the group is still seeking to expand.

A common complaint is the time it takes to get goods from ports to shelves.

“Even if you air-freight the goods and you think within a week your goods could be in store, it may take five weeks,” said Ronnie Steyn, chief financial officer of TFG, the biggest reseller of Nike Inc and Adidas AG products in South Africa.

Among the biggest is the shortage of real estate space and big malls, something that prompted Shoprite to raise 3 billion rand three years ago to team up with developers to build its own stand-alone stores in markets such as Nigeria.

“Do I advise my clients to stay away from Africa given Wal-Mart’s experience? No. Do I advise them to wait until there are enough shopping malls in countries like Nigeria to build critical mass? Yes,” said one retail consultant in Johannesburg, who declined to be named.