Wal-Mart Eyes South Africa

MARK HAMSTRA

BENTONVILLE, Ark. — Wal-Mart Stores last week said it has made a preliminary offer to acquire South African retailer Massmart Holdings for about $4.2 billion, a move that would give the global retailer its first foothold on the African continent.

Massmart, based in Johannesburg, operates 290 stores in 14 African countries, with the majority in South Africa. It operates eight different wholesale and retail chains under several different banners, offering general merchandise, electronics, home improvement equipment and supplies, and cash-and-carry groceries.

“It's a very good fit with Wal-Mart's business,” Bryan Roberts, global research director with London-based research firm Planet Retail, told SN last week.

Massmart operates a banner called Game, the largest discount chain in the country, which includes some grocery offerings, Roberts said. Other banners are Dion Wired, Makro, Builders Warehouse, Builders Express, Builders Trade Depot, CBW, Jumbo Cash and Carry and the Shield buying group.

Massmart is the fourth-largest food retailer in South Africa, with a 9.1% share, according to Planet Retail research from 2009. Wal-Mart also was reported to have been interested in Shoprite, South Africa's No. 1 food retailer, which has a 23.2% share. Other competitors include Pic N Pay, with 18.8% share, and SPAR, with 11.8%.

“Wal-Mart has been interested in the market for the last three years,” Roberts said. “What Massmart gives them is access to South Africa, and 13 other markets in Africa.”

Massmart, which is publicly traded, reported a 10% gain in sales for the most recent fiscal year, which ended June 27, to about $6.7 billion (U.S.). Comps were up 2.6%, and earnings were down slightly.

“South Africa presents a compelling growth opportunity for Wal-Mart and offers a platform for growth and expansion in other African countries,” said Andy Bond, executive vice president with responsibility for Wal-Mart's operations in the region, including the United Kingdom and Africa. “South Africa possesses attractive market dynamics, favorable demographic trends and a growing economy.”

Wal-Mart currently operates about 4,000 stores outside the U.S. in 15 different countries, although it has no stores anywhere in Africa.

Wal-Mart said the talks are in preliminary stages and subject to several contingencies.

“Wal-Mart sees its future overseas,” said David Rogers, president of DSR Marketing Systems, Deerfield, Ill. “They are starting to run into flattening and maturity here. Unless they can find a successful and profitable growth vehicle to take them into urban areas, their growth prospects here are particularly limited.”

Although Wal-Mart has enjoyed a large amount of success overseas, the company also has experienced some failures, including an effort to expand in Germany.

In South Africa, the company faced some early questions about working with local unions.

“We have no doubt that Wal-Mart will honor pre-existing union relationships and abide by South African labor law,” Massmart said in a prepared statement, following reports about concerns among labor groups.