Merchandise proposition:
Warehouse club trading in Food, General Merchandise and Liquor
 
19
stores
(19 stores in 2013)
9,500
full-time employees
(9,483 in 2013)
 
5
BBBEE score
(Level 5 in 2013)
 
6-10
Makro primary customers
2-8
Makro secondary customers (via trade)
 
Geographic presence:
South Africa
The Makro model is unusual in that it sells General Merchandise primarily to retail customers while much of its Food and Liquor is sold to wholesale customers, although increasingly retail customers are taking advantage of the low food prices afforded by the model. This blend gives it a robustness enabling it to trade comfortably through most economic cycles. The big-box warehouse club format, with our no-frills approach, keeps costs down and provides the platform for our high-volume, low-margin sales offering of quality branded merchandise. Our customer database of Makro store cards used at the point of purchase helps us to keep track of the spending patterns of our 2.4 million active members and we communicate regularly with them through targeted promotional material.
The Fruitspot is an established wholesaler and distributor of fresh and cut fruit and vegetables, and was bought by Makro in 2012.
 
Value proposition
Makro’s offerings are tailor-made to fit a variety of customer needs across all our merchandising categories. Makro’s Food offering caters to a wide range of wholesale shoppers and to retail customers looking for value across the basket. Wholesalers account for the bulk of Makro’s Food sales and most shop during the week for the convenience of our wide range of good-value, quality consumables. Retail Food and grocery shoppers can achieve substantial savings on their monthly household basket too. Makro’s Liquor outlets, immediately adjacent to the main outlets, continue to increase their range of premium brands especially in wine and whiskey. These products are sold at a low margin to maintain and grow market share. At the same time we have maintained a strong presence of beer and budget brands is maintained for customers looking for good value. Makro’s General Merchandise offering offers high-quality well-priced merchandise from all major durable brands and they are often market leaders with innovative offerings and aggressive promotions.
The Fruitspot provides customers with quality products at best price and very high service levels. The Fruitspot is committed to freshness at the point of purchase and prides itself on its relationships with its customers, many of which have lasted more than 20 years.
 
Highlights
  • Strong profit growth – now generates more than R1 billion profit before interest and tax.
  • Makro.co.za General Merchandise and Liquor online offering launched
  • Continued share gains as we improve our Food retail offering
  • Achievement of Payment Card Industry DSS compliance certification, to ensure on-going secure credit card processing
  • Introduction of the Baby category
Improvements
  • Fresh fruit and vegetable offering across most stores (16 stores)
  • Working capital and aged inventory levels improved across all 3 merchandise divisions
  • Mature stores’ profitability
  • Employment Equity profile of executive and senior management teams
  • Use of customer and market data to better optimise promotional and pricing activity
Challenges
  • Continued aggressive trading practices from independent wholesale competitors
  • Availability of real estate for new stores
Financial performance
Sales
R21,554.8m
Up from R19,271.7m in 2013
23% Massdiscounters 27.6% Masswarehouse 13.8% Massbuild 35.6% Masscash
Trading profit before interest and tax
R1,044.3m
Up from R939.5m in 2013
8.8% Massdiscounters 50.6% Masswarehouse 26.1% Massbuild 14.5% Masscash
Key sales drivers
  • Product deflation/inflation
  • Price/value perception
  • Interest rates
  • Consumer confidence and disposable income
  • New stores maturing
Product inflation
5.5% 
2.1% in 2013
+0
stores
Total assets
R7,689m
decreased from R7,166.8 million in 2013.
Total liabilities
R7,312.1m
increased from R6,587.8 million in 2013
Net capital expenditure
R70.3m
Down by 79.6%
decreased from R344.8 million in 2013.
No change in trading space
no change

Trading area 195,794 m2
Trading area 195,794 m2 in 2013
DC space 51,300 m2
DC space 51,300 m2 in 2013

 

Divisional Strategy:

The 2015 strategic focus is to bring new and young stores to optimal maturity, while ensuring stores leverage scale, and drive down costs. We will do this by:

  • Improving fulfilment capabilities, to better serve online and commercial customers
  • Investing in the instore and online customer experience, whilst balancing the need to achieve scale and operate at lowest possible cost per transaction
  • Continuing to improve the Food offering to retail customers, and deepen the Fresh and Butchery offering
  • Growing market share in Food and Liquor
  • Optimising working capital through replenishment and supply chain investments
  • Driving value through data-led insights into customer behaviours and needs
  • Investing in technology to better serve customers, manage our supply chain and coordinate commercial sales and fulfilment
Future Outlook:

Makro remains focused on bringing all customer types – retail, wholesale and commercial – the products and brands which they know and trust, at prices that save them money so that they can live better and trade more profitably.
At Fruitspot we will grow the business by ensuring it becomes a supplier of choice to the retail and hospitality industry in Gauteng and in the Group.
Masswarehouse’s omni-channel strategy is underway and growing. Our mobile solution for commercial customers has been well received.  The Makro locker pilot programme is in the market and will be assessed for future extension opportunities.

Investing in our community

Makro support the Wildlands Conservation Trust’s Food for Life programme which has assisted more than 250 previously unemployed community members in rural KZN to gain skills in a range of environmental restoration activities, recycling and food gardening.
We are committed to the upliftment and care of those in need in South Africa. We focus our corporate social investment (CSI) activities primarily on education enabling initiatives, school nutrition and infrastructure maintenance projects and recently, youth sports development. Through our Makro CSI partnerships we are committed to making an impact on the lives of the underprivileged within the communities in which we operate. We are committed to delivering on our promise of contributing at least 1% of profit after tax to deserving causes.

Commitment 1: Education

  • Hope Worldwide SUCCEED programme
  • The Tomorrow Trust
  • Kommunity Desk

Commitment 2: School Nutrition

  • The Izzi Trust
  • African Children’s Feeding Scheme

Commitment 3: Youth Sports Development

  • Moving Matters
Investing in our human resources

Our internal training and development initiatives aim to enhance productivity, customer service and operational efficiencies.

  • An internal skills audit on lifting machine operators was completed and specialised training given to ensure highest occupational health and safety standards.
  • Regular performance meetings on the Consumer Protection Act were held to assess progress.
  • More than 85% of our staff members are black and more than 38% are black women.
  • A total of 11.84% permanent employees undertook various training courses last year.
Investing in our environment

Masswarehouse remains an industry leader in improving energy efficiency in the retail environment. Makro was recently named a Global EIA Green Cooling Leader by the Environmental Investigation Agency, an independent UK charity founded to address environmental issues, for their commitment to MFC-free refrigeration.
Energy saving initiatives in our new stores have made them 25-30% more energy efficient which has enabled us to save as much as 36,000 kWh’s of electricity a month in our latest stores. Initiatives include:

  • Installing CO2 refrigeration systems that do not make use of ozone depleting refrigerant gases.
  • Capturing and reusing condensate from our air-conditioning and refrigeration systems to irrigate our car parks and gardens.
  • Using reclaimed heat from our refrigeration and air conditioning plants to help heat the domestic water used in our stores.
  • Installing daylight harvesting systems that use natural light, in tandem with LED high bay lights and sophisticated lighting controllers to improve our customers shopping experience while reducing the energy needed to light the store
  • Implementing secondary paper, board and plastic recycling initiatives across 100% of our stores, through which we estimate approximately 70% of our operational waste is diverted from landfill
  • Supporting a post-consumer e-waste take back initiative in partnership with Samsung, that facilitated the collection, recycling and where necessary safe disposal of 139 tonnes of e-waste in 2014.
Directorate

Guy Hayward Chairman, Doug Jones Chief Executive Officer, Dean Bauer Supply Chain, Norman Gray Non-executive, Garry Hendry Merchandise: Food, Derick Kalan Merchandise: General Merchandise, Jonathan Koff Merchandise: Liquor, Gert Lourens Operations, Melanie van Rooy Marketing, Pieter Schoeman IT and Projects, Mike Spivey Non-executive, Julie Wilford Financial, Donovan Wright Human Resources, Johannes van Lierop Non-executive