WHEN Mark Lamberti first took over the reins of a handful of Makro stores back in the late 1980s, one of the first things he did was fly to the US with a colleague in search of inspiration among that country’s major retailers. One of the merchants visited was Wal-Mart. So it must be satisfying for Lamberti to see the US giant sniffing around the South African empire he helped to create.
The proposed $4,2bn buyout of reflects not just confidence in the group and in SA. It reflects confidence in Africa, where a consumer boom is starting, as a whole.
Although the often-cited figure of a billion potential consumers is somewhat misleading as it does not reflect the difficulties of operating in a market of 53 states, nor of large impoverished rural populations, household incomes are increasing rapidly. A McKinsey report on Africa released this year says that between 2005 and 2008, consumer spending across the continent increased at a compound annual rate of 16% — more than twice Africa’s gross domestic product (GDP) growth rate in that period. In its extrapolation of various growth figures — population, urbanisation and per capita incomes — the company estimates that 221-million new consumers will enter the market by 2015. Clearly, Wal-Mart bosses have been reading this and other reports that reflect a buoyant market in the making. And you don’t have to work at McKinsey to have witnessed Africa’s cellphone revolution — a major contributor to GDP growth and rising incomes.
News of the Wal-Mart safari followed a much smaller deal, but one that also reflects rising interest in the African retail market. In August, the international group announced it was moving into Nigeria, Africa’s largest market, in a deal with a small local chain.
SA’s Shoprite battled its way into the Nigerian market five years ago with one store that quickly traded above expectations. Massmart’s Game store joined the grocery chain in an upmarket mall in Lagos that has been changing the way people shop in the commercial capital.
Shoprite has plans for dozens more stores across Nigeria. Its major constraint is not consumer demand but rather the shortage of investment in retail property. Massmart also counts Nigeria as its biggest growth market.
Notwithstanding the growth of Africa’s middle class and rising incomes, African consumers remain at the bottom of the pyramid. That may be a perfect fit for Wal-Mart, which failed in Germany, where the well- heeled market failed to respond to its lowest-common-denominator branding and goods. But it has done well in China, a country more closely aligned to typical African markets.
The key to success in Africa lies in the supply chain and ability to adapt to local conditions and challenges. South Africans have spent years fine-tuning the models.
Wal-Mart is no slouch in that department and has a super-efficient global supply chain. But it will be interesting to see how it will deal with the challenges of Africa — for example, congested ports in key markets. It is already facing its first challenge — SA’s infamous labour unions. The default position of the Congress of South African Trade Unions (Cosatu) with regard to foreign investment is to take the low road, a road which its own unreasonable demands and inflexibility have helped to create.
The challenge for SA in having a global company getting a foothold in this market is to develop a more efficient supply industry, thereby increasing jobs and reducing imports.
In China, Wal-Mart has about 20000 local suppliers and more than 95% of its merchandise in Chinese stores is sourced locally. But, as South African retailers have found, local sourcing is not just about reducing imports and improving turnaround times. It is also about getting buy-in from local consumers.
The challenge in the face of the Wal- Mart advance is for business to become more efficient. The trouble is, SA’s competitiveness is being eroded by inflexible labour legislation and low productivity. Wal-Mart’s reputation with suppliers is fearsome but its arrival is a wake-up call for SA, and the continent. It is obvious that Africa is the new centre of international investor interest. Not even Cosatu can change that. We just have to up our game.