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Don't worry about being bullied by Walmart

by Andile Makholwa
South Africa’s retail suppliers shouldn’t be worried about being bullied by United States multinational retailer Walmart if it succeeds in acquiring local counterpart Massmart. Instead, they should hope to benefit from the global retailer’s march into the rest of the continent through Massmart. That’s the advice from Bryan Roberts, director of retail insights at London-based research consultancy Kantar Retail, to SA’s retail suppliers ahead of the anticipated entry of the Walmart empire’s march into Africa.

Walmart has made an offer for a 51% stake in Massmart, the owners of Game, Makro and Dion Wired, among others. Though Massmart shareholders have voted in favour of the deal, there have been grumbles from certain quarters – notably, labour union Saccawu and its allies (the anti-Walmart coalition) – warning that union-unfriendly Walmart would harm local suppliers, because the US multinational has become so powerful it dictates to its suppliers at what price it’s prepared to buy goods.

“The initial conversation might be quite difficult,” says Roberts. “Walmart needs to be the lowest price retailer, which usually involves a supplier offering Walmart a lower price… What Walmart offers in return is huge volumes, huge growth.”

The promise of lower prices to consumers has been one of Walmart’s selling points in its intended acquisition of Massmart. While that will be good for SA’s consumers, it has remained unclear how the world’s biggest retailer will achieve lower prices without coercing suppliers – through its massive buying power – to sell at cutthroat prices. Retail is a high volume, low margin business. Retailers often do better if they negotiate good prices at product sourcing level and have excellent distribution channels.

Roberts says Walmart is reputed for its efficiencies in supply chains, which have enabled it to offer lower prices in countries where it operates. He reckons Massmart will tap into such efficiencies and pass on any benefits to consumers. “You might have those initial difficult conversations. But the simplicity and efficiencies Walmart will bring into the industry will benefit shoppers and suppliers,” Roberts says.

One example: instead of using supplier agencies, Walmart prefers to source directly from the manufacturer. In SA, the group currently sources fresh produce and wine directly from farms and wine exporters through its wholly owned sourcing agency IPL (International Produce Ltd) for its retailer in Britain, ASDA.

Nick Scrase, MD of IPL, says its model cuts out the middle man (supplier agency) and allows Walmart to retain the entire margin. “We don’t bully our suppliers – we work together,” says Scrase. “You get more out of vendors when you collaborate.” He adds the IPL model also gets products delivered more quickly because it’s constantly in touch with the producer.

Roberts says Massmart’s focus on food should bode well for SA’s farmers. He bets Massmart would open as many as 1 000 stores throughout Africa over the next five years after Walmart was on board. “I see no reason why Massmart can’t become a pan-African retailer. I think Massmart will become a grocery retailer with general merchandise,” says Roberts.

Useful resources:
Finweek
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