Procurement in Sub-Saharan Africa — Walmart's Success with Massmart (Part 1)

Occasionally, we get the chance to really expand our lens outside the narrow Western procurement world we operate within (yes, even Asia counts for the "west" in our opinion when we're focused on export sourcing). In our view, especially for developing nations (and continents like Africa), effective procurement and supply chain can have transformative effects on improving the quality of life and purchasing power of everyone on the economic totem pole. But tackling procurement and supply chain issues in regional markets is never easy in truly emerging markets, let alone when addressing broader questions such as:

  • Can you successfully operate a company in Africa?
  • How do you succeed where the government tries to stop you?
  • How do you win over politically well-connected labor unions?
  • How do you convince investors?

One organization that has fully taken the plunge in building a significant business in Africa is Walmart. Massmart Holdings was finally cemented as a 51%-owned business unit of Walmart Stores when the South African Competition Appeal Court decided last May that the acquisition was acceptable and could go forward.

Spend Matters recently had the chance to interview Don Frieson, a long-term Walmart employee, and currently Chief Integration Officer (CIO) at Massmart in South Africa (SA) since end of July 2011, for his comments on various aspects of operating a retail business in SA. What we learned is fascinating, including the core importance of procurement and supply chain for Walmart as part of its regional strategy in southern Africa.

To put the discussion in context, it is worth noting that Walmart has chosen a "soft glove" approach with Massmart, operating regionally under a "Massmart – powered by Walmart" label rather than switching to the parent brand. The SA business is significant, especially by African retail standards. Massmart Holdings saw around USD $7.5 billion in year over year sales as of July 2012. The organization has grown substantially (+12%) since the Walmart acquisition. The Massmart business, however, is still a small portion of Walmart's overall revenue. In comparison, the parent company had $447 billion in 2012 revenues.

Massmart's business units include:

  • Massdiscounters, including the Game chain with a footprint across not only SA but also in Botswana, Ghana, Malawi, Mozambique, Namibia, Nigeria, Tanzania, Uganda and Zambia – and the SA-only Dionwired stores – up 11%
  • Makro, warehouse clubs, up 20%
  • Massbuild, including Builders Warehouse, Builders Trade Depot, Builders Express, up 13%
  • Masscash, with Jumbo Cash & Carry, Shield, CBW, Cambridge Food, and boosted by Walmart's March 1 acquisition of Rhino Cash and Carry, up 16.5%

The soft touch we previously referenced comes from a philosophy of letting local market understanding drive the business, which is not only operating in a marketplace quite different from that in the USA, but also comprises business areas that fall well outside of Walmart's standard NA range of products and services. An approximation would be to say that Massmart's footprint covers what Best Buy, Costco, Home Depot, and Walmart address in the USA. We learned in our discussions with Don that Massmart business units listed above operate quite autonomously, with a fair amount of internal competition resulting from product overlap.

As Chief Integration Officer, Don used his first 3-6 months to get an understanding of the local culture and business style, focusing on change management and getting some of the Walmart attitude instilled along the way. Part of this activity is their intense level of interaction with suppliers, and Walmart's approach here came as a surprise to their SA suppliers. The 10 local SA suppliers that were brought in last spring (to Bentonville) to get up to speed on the new way to do business found it an eye-opening experience. Fortunately, "for the better," as we learned. They had not expected, nor ever experienced, that level of openness and joint business planning – i.e. discussions that were not just focused on transactional negotiations around volumes and sales numbers. Some of Walmart's multinational suppliers have been introduced to Massmart's supply chain, but much supply comes from regional and local suppliers. As Don says: "retail is local." They need good local suppliers.

Stay tuned as our series on Massmart and Walmart's experience operating a supply chain in Africa continues.

- Thomas Kase

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