As Wal-Mart Stores Inc plotted an Africa strategy, buying Massmart Holdings Limited two years ago was just the right vehicle. With 377 stores across the continent and a strong position in South Africa, Massmart offered the Americans a firm foothold in a fast growing region.
Today, Wal-Mart is reconsidering the strength of Massmart’s biggest store brand – Game – if not the wisdom of spending $1.8 billion for 51 percent of the company in 2011. As the world’s largest retailer expands in Africa, Massmart may drop the Game brand in favour of Wal-Mart for stores outside of South Africa. That’s because many Africans are put off by what they perceive as South Africa’s swagger.
“In Nigeria, people want to believe they are the gateway to Africa, in Kenya they want to believe they are the gateway, so an American brand is often more welcomed than a South African one,” Grant Pattison, chief executive officer said over coffee in Massmart’s Johannesburg headquarters. “You can put it down to regional competition, but we will look at using the Wal-Mart name, or a name local to that country.”
Massmart, with stores in 12 countries, first moved outside its home market in 1993 when it opened a big-box store under the Game brand in Botswana. The company now operates 14 Games, 13 CBW stores selling food, liquor and cosmetics wholesale, and one outlet of its Builders Warehouse construction goods brand on the continent outside of South Africa.
The economy of sub-Saharan Africa will expand 5.3 percent this year, higher than the 3.6 percent expected worldwide, the International Monetary Fund estimates.
Nigeria, Africa’s most populous country, is forecast to grow 6.8 percent this year, according to its National Bureau of Statistics. By 2030, Africa’s 18 biggest cities will have combined spending power of $1.3 trillion, consultant McKinsey estimates.
“Africa doesn’t want to feel like it’s being colonised by South Africa,” said Wayne McCurrie, a portfolio manager at Momentum Asset Management in Johannesburg. “There is definitely an allure in developing markets for American brands.”
Some analysts question the wisdom of abandoning the Game brand, which is known outside of South Africa for offering a wide range of goods in a region where consumers often schlep from store to store for their daily shopping. Other South African companies such as supermarket chain Shoprite and mobile phone provider MTN have successfully expanded northward, said David Shapiro, a director at Sasfin Securities in Johannesburg.
“Choosing the Wal-Mart name over its own Massmart brands may be risky,” Shapiro said. Massmart’s sales in the fiscal year through June 25, 2012, rose 15.6 percent to 61.2 billion rand ($6.7 billion), versus 12 percent growth in the year through June 2011. Net income jumped 40 percent from a year earlier to 1.17 billion rand in the 2012 year. Sales in South Africa make up 92 percent of revenue.
Since September 23, 2010, the last trading day before the Wal- Mart deal was made public, Massmart’s shares have advanced 47 percent versus gains of 80 percent for Shoprite Holding Ltd. and 69 percent for the FTSE/JSE Africa General Retail Index.
Pick n Pay Stores Ltd. has declined 5 percent in the period. Massmart traded at 197 rand as of 3:24 pm in Johannesburg.
Massmart says it’s planning several new stores in countries where it’s already present. And it is setting up Game outlets in Angola and Kenya, new markets for Massmart. Profit at Game stores outside South Africa is growing faster than sales, Pattison said, without offering further detail. Wal-Mart declined to comment beyond Pattison’s remarks.
