Our socio-economic backdrop

The causes and symptoms of South Africa’s deteriorating economic outlook have been aired thoroughly by commentators. It seems likely that 2016 will prove to be South Africa’s recent economic nadir as the economy is buffeted by weak growth from key international export markets, weak mineral commodity prices, greater risk-aversion towards Emerging Markets, and our own softening economic growth which registered recently only 1.3% GDP growth for 2015 (and only 0.7% and 0.6% GDP growth for Q3 and Q4 of the same year). This already difficult scenario will be compounded by South Africa’s worst drought in several decades which will have a direct economic impact and, possibly more worryingly, a severe social impact, as prices of basic foodstuff escalate in the short-term.





Total sales up by


(R84,732 million)

Comparable sales
growth of  

6.7%     _

Growth in comparable sales volumes of 3.7%

Operating profit before
foreign exchange
movements (taxed) and
interest up by   

14.1%    _

(R2,300 million)

Headline earnings
before foreign exchange movements (taxed) up by  

7.7%     _

 (R1,230 million)






No. of Divisions that
grew operating profit ahead
of their own sales growth_


Private Label sales represent

of Group sales

Trading space increase

due to 21 new stores opened, including five outside
South Africa

No. of stock days through effective inventory management

(64 in 2014)

Total ecommerce sales

R183 million




The South African Government’s recent efforts, together with big business, to avoid a recession in 2016 and a possible sovereign credit rating downgrade, are welcomed. Whilst there are forums for useful dialogue between Government, Business and Labour as the key stakeholders in the delivery of economic growth and prosperity, it is Government that sets the platform and policies for that longer-term growth and prosperity. In South Africa’s case, this has become muddled and unclear which is destabilising for business – management and investors – which both require policy certainty in order to plan, fund and execute long-term strategic initiatives.

The apparent unease within Government and our ruling political party needs to be resolved in order that South Africa’s economic trajectory can be planned. Good stakeholder protocol requires that business always supports the government of the day, and Massmart is no different. In the absence of clear and cogent long-term socio-economic policies however, business necessarily becomes short-termist and risk-averse, avoids marginal longer-term expansion plans, and/or may seek alternative growth markets.

We continue to closely track economic and political developments in the 12 African countries, other than South Africa, that collectively contribute 8.4% toward Group sales. Many larger African countries have been adversely affected by the same global economic impacts described earlier but their own economic contraction tends to be deeper and sharper, as a result of their relatively illiquid currencies. Despite this, we note that most African countries where we operate have stabilised economically apart from one or two of those countries where there may potentially be further currency devaluations.

Our response

Massmart’s leadership across major merchandise categories, including General Merchandise, Wholesale Food & Liquor and DIY / Home Improvement, and our different retail and wholesale formats enables us to respond effectively, and in a differentiated manner, to the anticipated socio-economic environment depicted earlier. In South Africa, our large and mature businesses like Game, Makro and Masscash Wholesale, provide a powerful underpin to the Group’s profitability and cash earnings, whilst our other businesses like Massbuild and Cambridge Food offer good growth and profit prospects. And beyond our borders, we are growing our Game, Builders Warehouse and Wholesale (Cash & Carry) stores and are participating in the sub-continent’s significant long-term growth potential.

Later in this letter we describe the four strategic priorities we are pursuing being: improving profitability; growing Food Retail and Builders Warehouse in South Africa; growth into sub-Saharan Africa; and ecommerce. In the immediate term however, we placing most emphasis on:

  • Keeping operating costs as a % of sales as low as feasible. This is achieved in multiple ways but key focus areas include supply chain and logistics efficiency and effectiveness, reducing store construction and in-store operating costs, and effective labour-scheduling of our store employees;
  • Maintaining a competitive price-gap against our major competitors across KVI’s enabled by the fact that Massmart’s operating costs (as a % of sales) are the lowest in South African retail;
  • Working closely with key suppliers to ensure that we invest energy and resources into areas of common interest, including supply chain efficiency, to ensure their products reach their desired target markets cost effectively; and
  • Being selective about our South African store footprint. Only opening stores that we are confident will be sustainably profitable and closing those with permanently compromised profitability.

The year in review

As noted, the outlook for the South African consumer economy in 2016 and likely part of 2017 has weakened considerably and we anticipate further negative pressures, including compromised economic growth, higher inflation from the weaker Rand, and higher interest rates.

As with most local retailers, Massmart’s sales growth slowed in the latter part of 2015, in our case caused mainly by softening sales in our General Merchandise and DIY categories. By contrast Food sales growth accelerated on the back of effective trading in Masscash Retail and Wholesale. Internal Food inflation remained steady but is expected to increase in the early part of 2016 and probably rise sharply in drought-affected commodities.

The weaker Rand and declining upper-income consumer confidence levels in South Africa will adversely impact sales of large appliances, hi-tech and multimedia due to accelerated imported price inflation. We are closely monitoring the South African bonded housing market – its price movements, supply and demand, and consumer confidence – and will respond proactively as required. Our businesses place an intense focus on sourcing well-priced merchandise and formulating deals that offer our customers exceptional value.

Most Massmart Divisions performed exceptionally well in the tough South African consumer environment where we effectively managed the fine line between growing sales and maintaining profitability, and controlled comparable cost growth in the face of severe cost-pressures.
During the 2015 year, 21 new stores were opened, including five outside South Africa, representing new space growth of 4.2%. Ten South African stores were closed resulting in a net space increase of only 0.7%. We continue to carefully review store lease renewals and are closing stores we consider incapable of achieving sustainable profitability. At December 2015 our total portfolio of 403 stores includes 38 stores outside South Africa.

Sales in our non-SA stores remain robust with total sales growth for the 2015 year in local currencies of 13.8% (12.6% in Rands) and comparable sales growth of 5.6% (4.8% in Rands). Non-SA sales currently represent 19.7% of Game’s total sales, 6.2% of Massbuild and 12.9% of Masscash Wholesale respectively.

We remain excited, but measured, about the long-term growth opportunities across selected African countries and expect to open five new stores outside South Africa during 2016.

Overview of financial performance

In his report included on pages 44-63 our Chief Financial Officer, Johannes van Lierop, addresses in useful detail the key financial issues necessary to understanding and interpreting the Group’s 2015 performance. Briefly however, Massmart’s total sales were R84.7 billion, an increase of 8.4% over the prior year. Comparable stores’ sales growth was 6.7% and product inflation 3.0%, reflecting continued good volume growth.

Group operating profit, excluding foreign exchange movements (taxed) and interest, grew by 14.1% to R2.3 billion. This performance was achieved by effective margin management and good expense control across all Divisions, as well as some margin recovery in Game.

Higher net interest paid from funding significant property acquisitions in 2012-14, and an adverse movement in foreign exchange translations, resulted in headline earnings increasing by 1.2% to R1.1 billion while headline earnings, excluding foreign exchange movements, increased by 7.7%.




















































































Click here for more about SDP initiatives and other programmes.



 More information on our strategic priorities can be found here







Operational highlights

  • All Divisions reported positive sales volume growth and grew market share
  • Three of the Divisions grew operating profit ahead of their own sales growth
  • Our non-SA stores had strong second-half sales and profit performances
  • Private Label sales represent 8.3% of Group sales
  • 21 new stores opened, including five outside South Africa, increasing space by 4.2%
    Effective inventory management saw stock days of 63 at December 2015, better than 64 days a year earlier
  • Total ecommerce sales now R183 million

Divisional operational review


Game: 137-store General Merchandise discounter and Food retailer. Trades in South Africa, Botswana, Ghana, Kenya, Lesotho, Malawi, Mozambique, Namibia, Nigeria, Tanzania, Uganda and Zambia.
DionWired: 24-store Hi-tech retailer. Trades in South Africa.
Total sales for the 2015 year increased by 8.7% and comparable sales grew by 3.9% with product inflation of 1.7%. Trading profit before interest and tax increased by 30.3% from improving margin management, solid expense control and a good performance from Game Africa, particularly in the second-half of the year.


Game SA traded well in a difficult domestic consumer environment and reported total sales growth of 7.8%. Better management of everyday and promotional sales mix and pricing benefited trading margins which, combined with great cost control, saw trading profit up 29.8% which is a tribute to the energy and focus of Game Chief Executive Officer (CEO), Robin Wright, and his team. Game Africa’s total Rand sales and sales in local currencies increased by 13.5% and 17.5% respectively, with trading profit up 23.8%. We are particularly pleased with the trading performances of our new Game stores in Kitwe (Zambia) and Matola (Mozambique). Despite the difficult economic situation in Nigeria, we are trading at acceptable levels in all four stores in that country. The central bank’s restrictions on foreign currency have had minimal impact on our sourcing because more than 80% of our product is procured locally.

The roll-out of Fresh continues with 84 Game stores now offering this category, and Food and Liquor sales now comprise 21.3% of Game’s total sales and grew at 19% in 2015.

Our SAP IT project takes a material step forward in the second half of 2016 when we commence the point-of-sale software replacement across our stores. The more critical SAP ERP implementation is scheduled for 2017. Our migration from old legacy IT systems towards SAP is a very significant journey in fundamentally improving Game’s customer offering, merchandise control, promotional management, and in-store processes. Whilst this project will cost capital of about R330 million in 2016 and 2017, it will initially only slightly increase IT costs as a % of sales in 2017 and 2018, and then this ratio will decrease steadily.


DionWired has consolidated its position as South Africa’s best Appliances and Electronics’ boutique. Given the difficult upper-income consumer environment, we are pleased with total sales growth of 7.8% and saw trading profit growing at a similar level. This format is now ten years old and as we reach the end of the ten-year leases of some of our earliest stores, we will consider closing or reducing space in selected stores. We are conscious of the likely impact of ecommerce on this retail format and so manage our store footprint and offering with that opportunity in mind.

Anti-competitive challenges

During 2015 there were several developments regarding lease exclusivities and Mike Spivey, our General Counsel, has expertly navigated these issues. These lease exclusivities are legal arrangements contained within certain shopping centre lease agreements that appear to entrench the incumbent major food supermarkets in certain localities within South Africa. In 2014 Massmart formally requested the Competition Commission to investigate these market practices and in mid-2015 self-referred this complaint to the Competition Tribunal. At about the same time the Commission announced its intention to hold a formal inquiry into these tenancy arrangements and in February 2016 announced the names of the panel members who will lead this process. Finally, we have successfully appealed the November 2015 decision of the Supreme Court of Appeal regarding lease exclusivities at the Cape Gate shopping centre.

Store changes

Eight Game stores (including one each in Kenya, Mozambique, Nigeria and Zambia) were opened and one store was closed; and two DionWired stores were opened and one store was closed, increasing trading space by 5.3% to 533,078m².


Makro: 19-store Makro warehouse-club trading in Food, General Merchandise and Liquor. Trades in South Africa.
The Fruitspot: established wholesaler and distributor of fresh and cut fruit and vegetables. Trades In South Africa.


With no new stores in 2014 or 2015, Makro’s total and comparable sales growth for the 2015 financial year was 9.8%, with product inflation of 3.4%. The suggested volume growth of 6.4% shows how our customers, both retail and wholesale, continue to respond strongly to Makro’s value proposition. The growth in Makro’s R1.2 billion trading profit before interest and tax was good at 14.8% and was assisted by excellent expense control in the face of trading margin pressure.
The operational efficacy of Makro stores remains breath-taking – 19 stores combined produced annual sales of R23.7 billion – and forms the cornerstone of our lowest cost to operate which, in turn, empowers our ability to trade at margins sustainably lower than major competitors. Makro CEO, Doug Jones, and his team are clear on the need to sustainably maintain this low-cost philosophy.

Online sales, a business unit that is not yet two years old, now represent about 2% of total sales in those categories that form part of the online offering. Makro customer card data indicates that online shoppers continue to visit and shop in our stores, and we see that click & collect remains a popular choice. We are delighted with the response to our new B2B online commercial customer offering, launched in November 2015, which aims to use ecommerce as an enabler for us to better serve the needs of customers like restaurants, caterers, offices and schools.


Although small, Fruitspot is a strategically significant fruit and vegetable distributor and processor for the Group’s Gauteng retail operations. We serve many of the Makro, Game, Cambridge and Masscash stores in the greater Gauteng region and our common Private Label, Marketside, is found in most of these stores. Importantly, it continues to serve third parties which ensure we keep relevant with current pricing and market trends.

Store changes

There was no store movement in 2015 but we are looking forward to opening a new store in April 2016, near Carnival Mall in the east of Johannesburg.


39 Builders Warehouse stores, 41 Builders Express stores, 14 Builders Trade Depot stores and 8 Builders Superstore stores. Offer includes DIY, Home Improvement and Building Materials. Trades in South Africa, Botswana, Mozambique and Zambia.

Massbuild grew total sales for the period by 11.0%, with comparable sales increasing by 7.4% and product inflation of 3.8%. Sales growth in our significant Builders Warehouse format slowed in the later part of 2015. Whilst some of the slowing was in our retail customer base, there was a marked drop-off in commercial and contractor sales particularly those serving local and provincial governments. Also impacting sales growth, by about 1%, is significantly lower generator sales following the welcome recent stabilisation of South African electricity supply. Interestingly, Builders Express sales remain steady which suggests that confidence levels within the South African housing market is stable.
As seen globally, in the short-term the prospects of the DIY / Home Improvement format is closely tied to the health and growth – both in supply and prices – of the bonded residential housing market. Given that the South African housing market may come under pressure this year, there is potential for low but positive sales growth in this Division.
The success and consumer acceptance of the Builders Warehouse format outside South Africa continues to exceed expectations and CEO, Llewellyn Walters, and his team are resolute in their desire to open more of these stores. Total sales in non-SA stores grew by almost 50% and annualised sales may reach R1 billion soon. We have two stores in Botswana, three stores in Mozambique, and in late 2015 opened our first Zambian store.

Massbuild’s trading profit before interest and tax increased by 29.0% on the back of focused margin management and effective expense control.

Builders Trade Depot and Builders Superstore

For several years we have gradually reduced the number of Builders Trade Depot stores to leave a core of 14 stores focused on being large regional suppliers of building materials and hardware. Whilst this format has good sales, it has undoubtedly been impacted by the success and dominance of Builders Warehouse and Builders Express. The new Superstore format – bringing DIY to middle-income customers in outlying metropolitan areas – continues to exceed expectations and we are expanding this store format beyond the Gauteng province within South Africa.

Store changes

Four Builders Warehouse stores were opened (including one in Zambia); two Builders Express stores were opened and two closed; and two Builders Trade Depot stores were closed. Net trading space increased by 2.9% to 449,133m².


70 Wholesale Cash and Carry stores. 51 Retail stores, most operating under the Cambridge or Rhino banners. Trades in South Africa, Botswana, Lesotho, Mozambique, Namibia and Swaziland.
Shield, a voluntary buying association trades in South Africa, Botswana, Namibia and Swaziland.
In the very competitive South African Wholesale and Retail Food environments, total sales increased by 6.1% and comparable sales increased by 5.8% with product inflation of 2.9%. Product inflation began to increase in the latter part of 2015 as commodity price movements moved from deflation into inflation. This price trend may unfortunately now accelerate as categories like maize, sugar and potatoes are likely to be affected by the drought.
Masscash’s trading profit before interest and tax decreased by 25.8%.

Masscash Wholesale

As a consequence of more aggressive trading and some price inflation, Masscash Wholesale’s sales growth accelerated towards the end of the financial year. Wholesale CEO, Neville Dunn, and his team have dealt well with an extremely aggressive and very fluid South African wholesale market, which has recently been plagued by poor tax compliance by some independent industry participants, and the prevalence of grey or illicit product. This intense trading pressure adversely impacted our margins and we recorded a large profit decline in Wholesale. The modernisation of South African retail necessarily involved some decline in the extent of participation by wholesalers in the distribution of FMCG, and consequently within our business we have been deliberate in closing marginal or unprofitable stores when leases are up for renewal.

Masscash Retail

Masscash Retail, trading mostly through the Cambridge and Rhino formats, traded very well, reporting comparable sales growth of 7.3% which is higher than similar figures reported recently by other major South African food retailers. Kevin Vyvyan-Day, the Cambridge CEO, and his team did a superb job in introducing SAP into the KwaZulu-Natal stores during 2015 and still saw growth in sales and profit for 2015.

Store changes

Three Wholesale stores were closed and a number were re-sized; whilst five Retail stores were opened and one was closed, resulting in net trading space decreasing by 7.0% to 372,714m².

Other significant achievements

In a recent panel discussion hosted by Trialogue, dealing with Sustainability in the Supply Chain, a significant multi-national supplier commented that Massmart is the only South African retailer that regularly requires suppliers to disclose their own environmental progress. We do this through an annual environmental advocacy survey that is supplemented by random site visits which results in the recognition of the top ten environmentally focused suppliers in the Massmart supply chain. The top-performing supplier in 2015 was Belgotex Carpets who were recognised for their installation of a 1MW solar energy plant at their KwaZulu-Natal facility.  

This is just one way in which we are working towards advocating responsible practise in our supply chain; other advocacy initiatives include timber and seafood procurement screening, and third party responsible sourcing audits of Private Label, direct import and exclusive brand products.

We are equally focused upon ensuring responsible environmental practices in our own operations in which we have long running waste re-cycling, water conservation and energy efficiency programmes. In 2015 we diverted 20,000 tons of operational waste from landfill, saved approximately 17 million litres of water through rain water and condensate harvesting and have avoided 52 million kw/h of electricity consumption equating to 53,000 tons of indirect carbon emissions. I am most proud that in 2016 we will pilot three grid-tied photovoltaic renewable energy projects that we estimate will generate 2.4 million kw/h per annum.

Meanwhile our small business development programme, under the guidance of Brian Leroni, Group Corporate Affairs Executive, continues to seek opportunities to develop and integrate small enterprises into our supply chain. This currently comprises a portfolio of 28 small manufacturers of merchandise such as cooler boxes, clothing, nails, bricks, hollow core doors, charcoal, plumbers tape, fire-gel, maize meal and noodles.


Strategic priorities

For the longer-term, our key areas of strategic focus remain unchanged:

  • Improve the profitability of the core South African business
  • Continue growing Retail Food and Builders Warehouse in South Africa
  • Further growth into sub-Saharan Africa
  • Continue to expand and improve our ecommerce offerings

Group profitability

There are two dimensions to this objective – to improve where possible the profitability of each of the Divisions and to ensure that we collaborate across the Divisions to reduce cost duplication and inefficiency. While Makro and Massbuild are operating at acceptable profit margins, the profit margins of Game and Masscash Wholesale and Retail need improvement. Each business has clear short- and medium-term objectives that will enable this. Our collaboration efforts are overseen by our Group Commercial Executive, Llewellyn Steeneveldt, and involve our core functional areas across each Division – like IT, Supply Chain, Real Estate, Merchandise, Private Label – working together. Collaboration takes many forms: negotiating with a single supplier across the Group for best price and service; aligning around a single instance of product master-data; using software to optimally manage primary and secondary transport and logistics; or enforcing a peer-review for new IT projects.

Grow Retail Food and Builders Warehouse in South Africa

We remain excited at the growth opportunities presented by both Retail Food and Builders Warehouse in South Africa Although still small, Builders Warehouse has a significant relative market share in South African DIY / Home Improvement and we will continue to roll-out this wonderful retail offering through three formats – Builders Warehouse, Builders Express and Builders Superstore. Retail Food, already a R15 billion sales category across the Group, is being rolled-out through adding the Fresh category to Game and Makro stores, and by opening more Rhino and Cambridge stores on a regional basis.

Growth into sub-Saharan Africa

As noted elsewhere, our 2015 sales growth from our non-SA stores was strong at 12.6% (and 13.8% in local currencies) which is well above the 8.0% total sales growth reported from our South African stores for the same period. Non-SA sales currently represent 19.7% of Game’s total sales, 6.2% of Massbuild and 12.9% of Masscash Wholesale respectively.

We remain excited, but measured, about the long-term growth opportunities across selected African countries and expect to open five new stores in four countries outside South Africa during 2016.


We are alert to the growing presence of online shopping and digital activation in our customers’ lives and how it affects their shopping behaviour and needs. Similarly, we are clear that internationally customer purchases of one of our largest merchandise categories, General Merchandise, have moved significantly online. In response, there are three current ecommerce offerings within Massmart: B2B, General Merchandise and Liquor in Makro; DionWired’s Hi-tech merchandise range; and, in Masscash, Shield’s B2B platform.
Combined these represented sales of R183 million in 2015 and we are seeing significant acceleration in this sales growth. Makro’s online sales, for example, in the fourth quarter of 2015 were double those for the same 2014 period. In Massbuild a project is underway to provide our contractor and commercial customers an online platform to enable and expedite online shopping including access to credit and associated services.

Linked to ecommerce and digital is the provision of a broad array of financial services to our retail customers. We are pleased that a seasoned executive with many years’ experience in this area of retail, Gerhard Hayes, has joined the Group and work is already underway to improve our offering.

The Board and Executive Committees

My Board and Executive Committee colleagues are a source of great counsel and support. At Board level we have ready access to skills and experience across diverse areas including international retail, multinationals, corporate governance and risk, public policy and transformation, and real estate. This counsel, of course, extends beyond me to my Executive Committee colleagues and senior management. I formally thank and acknowledge the support the business and I have received from my Board colleagues, and I recognise the leadership, strategic debate and operational execution that comes from my Executive Committee colleagues.

Following the November 2015 resignation of Mrs. Shelley Broader, I was pleased that Walmart appointed Mr. Enrique Ostalé to the Board in February 2016. Enrique is the President and Chief Executive Officer of the Walmart Latam, India and Africa Region and I look forward to his contribution to Board deliberations, and to me as CEO.

Earlier in 2015 we announced the appointment of Mr. Moses Kgosana as an independent non-Executive Director and member of the Audit and Risk Committees, and he has already made an impact on the Board and sub-committees. I have previously acknowledged the enormous and extended impact on Massmart of our former Group Finance Director, Mr. Ilan Zwarenstein, who resigned in early 2015.

Mrs. Pearl Maphoshe resigned from Massmart and the Executive Committee in early 2015. Pearl was instrumental in designing and implementing most aspects of Massmart’s very successful Executive and Management Training & Development programmes, and was also a strong advocate for racial and gender transformation with the Group.
We were fortunate in that Pearl had groomed a very competent successor in Jane Bruyns who readily stepped into her role.

Our people and transformation

The retail and wholesale environment in South Africa and many African countries has been, even for our demanding industry, exceptionally difficult in recent times. This places additional pressure on our 48,000 colleagues whose dedication and hard work ensure Massmart’s ability to consistently exceed the expectations of the customers who shop in our stores. It is as a direct result of their commitment that Massmart has been able to report this improved financial performance in 2015. I would like to thank every one of them for their loyalty and support.

During 2016 we anticipate finalising the insourcing of several categories of employees currently employed by labour-brokers. It is likely that this decision, which we consider to be the right thing to do for those employees, will place some pressure on our employment costs. This important and complex process is being managed by our Group Human Capital Executive, Jane Bruyns, and her HR community.

For a business to be sustainable it must reflect, and be responsive to the needs, nature and direction of the society within which it operates. We believe that diversity, or transformation, makes a business stronger, more resilient and more responsive. As a major South African corporate, we continue to focus on the transformation of our senior and Executive management.


For the 13 weeks to 29 March 2016, total sales increased by 9.0% and comparable sales increased by 7.2%. This year’s Easter period is earlier than in the prior year and has likely bolstered recent sales growths. We continue to see strong sales growth from our non-SA stores.

We remain of the view that for 2016 and possibly 2017, the anticipated South African economic environment will constrain consumer spending across several key Group categories including General Merchandise and Home Improvement / DIY, whilst our substantial Food and Liquor categories may perform relatively better. There may be severe pricing pressure on lower-income households and we are resolved to keep our baskets affordable for those households.

The financial information on which this outlook statement is based has not been reviewed or reported on by the Company’s external auditors.


Our appreciation and gratitude is due to all our stakeholders for their contribution and commitment to Massmart during this period.


Guy Hayward            
Chief Executive Officer
1 April 2016