Rolling Up the Sleeves in Africa
Planet Retail spoke with a number of retailers, suppliers, IT vendors and market analysts during a recent research trip to sub-Saharan Africa. One impression we received was that, following Walmart’s June 2011 entry into the South African market, the debate is now moving from “who is Walmart?” to how to re-position and streamline operations in the face of intensifying competition. A Cambridge Food outlet in Johannesburg recently opened opposite a Shoprite Usave store, and the price war began with a sign in front of Usave reading: “For the lowest prices, stay this side of the road.”
Post-Walmart entry outlook Following months of heated debate about the implications of Walmart’s market entry, as well as the national Competition Appeal Court’s final clearing of the move earlier this month, market participants appear to have reached a widespread consensus on the topic. The predominant opinion is that Walmart will have a strong impact on South African retailing and price levels — albeit not overnight — and suppliers and competing retailers have a limited number of years to boost the efficiency of their operations and/or reposition themselves in specific market niches. A number of suppliers and retailers stated they were happy to roll up their sleeves and accept the challenges. Such statements — as well as the fact that 51 million consumers in South Africa will directly benefit from a more efficient and competitive food retail landscape — cast further doubt on the concerted efforts of several South African government departments and trade unions to block the deal under the guise of protecting local manufacturing jobs. With the debate moving on, local retailers are increasingly working on issues like central buying, centralized distribution, state-of-the-art IT systems, EDLP initiatives, customer loyalty schemes, private label programs and financial services offers.
Fundamental changes The Retail World Africa conference, held in Johannesburg in March, focused on debates about customer relationships, brand building and supply chain issues in an increasingly competitive African market. Jonathan Ciano, CEO of Kenyan supermarket operator Uchumi, sensed “fundamental changes in some long-held beliefs” and stressed that the years ahead would require “behavior modifications on the part of executives, managers and frontline workers alike.” Operational efficiencies dominated conversations at the conference’s associated Cards & Payments Africa show. IT vendors presented new solutions for the small and independent traders with limited budgets that are likely to feel the pressure from market leaders in the years ahead. Our fresh set of impressions have confirmed that sub-Saharan Africa is not yet ready for European-style discounting on a large scale for a number of deep-seated structural reasons. For example, a significant proportion of consumers are unable to make bulk purchases as a result of low car ownership rates, small homes with little storage space and, in some regions, the frequent electricity supply disruptions that affect available refrigeration. Meanwhile, there are a limited number of independent, private label manufacturers that would be interested in introducing aggressive new economy price points at near brand quality. In terms of pricing, the impression prevails that Shoprite, through its Ritebrand, provides South Africa’s only true large-scale economy private label, as a big niche for economy ranges of brand quality remains largely unoccupied. Most private label ranges continue to be priced similar to branded items. The foreseeable launch of Walmart’s Great Value brand in the region will certainly accelerate developments. In the months and years ahead, competition in the South African market will heat up further, with Shoprite announcing new acquisitions and other domestic retailers like Pick n Pay and Woolworths in continued talks with potential foreign investors. As efforts to boost supply chain efficiencies also continue, the message that this is the beginning of a new age in South African retailing has been received and accepted by Walmart’s local competitors.