Walmart’s South African subsidiary Massmart has been doing business in the rest of the continent for around 15 years. The company has a presence in 12 African countries outside South Africa.
During a session yesterday at the Ernst & Young Strategic Growth Forum Africa in Cape Town, Mark Turner, Africa director at Massdiscounters, a division of Massmart, shared some insights into the company’s business in the rest of the continent. Here are the highlights:
Sophisticated customers “One of the things that have amazed us, is that it is a very brand-conscious market … Particularly in our west African markets, in Ghana and Nigeria … it is a market that travels extensively and has access to internet. It is amazing how sophisticated that customer is,” said Turner.
Long-term view “I think what is really important is that you need your Board to understand that you have to have a long-term view on Africa,” explained Turner.
He noted that when Massmart first expanded beyond South Africa’s borders, it started in “less risky countries” such as Namibia and Botswana. “We cut our teeth there. We learnt what it is like crossing borders …”
Turner said that it is only since about five years ago that Massmart started trading in countries where merchandise has to be transported from South Africa by sea. “And those have proved to be a challenge. If we didn’t have the base of the Southern African Development Community (SADC) countries that have given us some stability, it would have made the expansion into those far-away countries probably much harder. If your Board isn’t going to be patient for the long-term growth of potentially where we see Africa going, you are going to have a problem.”
Exchange rate volatility Turner said that as a South African company, Massmart often has to deal with the challenge of volatile currency exchange rates in other African countries. “What makes it harder for a South African company is the volatility we see in the exchange rates. Certainly for the last two years we’ve had a real volatile road in Africa. And again the Board had to be patient.”
Don’t make decisions based on media hype about opportunities in Africa There have recently been various media reports, particularly in South Africa, about the growth opportunities that Africa offers. For example, last week Reuters quoted Whitey Basson, CEO of pan-African supermarket chain Shoprite, saying that he sees potential for 700 stores in Nigeria. Turner said that it often takes a while for the opportunity that Africa offers to reflect on a company’s bottom line.
“The Board needs to be careful not to base their decisions on what they see on the TV and media. You hear everybody talking about this massive opportunity in Nigeria … and I happen to agree with that. You heard Whitey Basson say last week … that they see 700 stores in Nigeria. The truth is that both of us (Massmart and Shoprite) are probably not getting the returns we should be in that risky market … it takes patience and you can’t just go with what the news is saying.”
Where is the market going? “It is a challenge to actually figure out where this market is going. Certainly what we are clear on is that the market is growing. It is changing. It is evolving. There is a middle market, certainly that is what appeals to us. And the middle market is growing, it is growing faster in some zones than others,” said Turner.
He added that Massmart is also counting on Africa’s young population for future profits. At present, Africa‘s median age is 19.7, compared to 32 for the BRIC nations. Overall, out of 100 Nigerians, 55 are under 20 years-old. “Really where we’ve got our radar set is this youth that are still going to come through. That is the one thing that Africa has, that Europe and America don’t have … If you look at the profile of our future customer. We’ve got a depth of customer … As infrastructure and business lending grows, and they create employment and that youth market comes through … there is potentially going to be an explosion.”