Our material matters are those issues that could substantially affect Massmart’s ability to create value in the short, medium or long term. In determining these issues consideration is given to the Group’s long-term strategy, its operating context, the interests of key stakeholders, media coverage or public concern, and key risks and opportunities facing the business. Material matters are reviewed annually by Executive management, the Risk Committee and the Board.
The following key material matters impacted our ability to create value in 2018:
A Constrained consumer environment
The impact of a higher VAT rate, higher fuel prices, the interest rate hike and ongoing high levels of unemployment in 2018 has eroded consumer spending. After a year of deflation in many Food categories, there is now a rising trend in Food inflation, most notably in commodity products.
The Massmart businesses together serve all consumer segments from LSM 1 to LSM 10 and our product mix comprises 44% Durables and 56% Food & Liquor. Our relatively high exposure to Durable sales categories means that parts of our business are the first to feel the impact of any slowdown in consumer spending.
Non-adherence to our business model or poor strategic execution by the Divisions
Inability to innovate in response to a changing competitive landscape
Weak consumer environment impacting on growth and profitability
Maintaining a positive price-gap against competitors across KVIs
Innovating through the effective use of analytics and data insights
Growing Retail Food and Fresh categories
Leveraging the integrated supply chain
Economic volatility and political uncertainty
The dampened South African consumer sentiment is unlikely to sustainably improve unless there is positive momentum in some key macro-economic factors including: economic growth, the Rand exchange rate, business and consumer confidence, interest rates, the efficiency of SOEs and the national and municipal infrastructure, and unemployment. Much of this will likely turn on the outcome of the South African national elections in May 2019.
In addition, six of the 13 markets in which Massmart operates (Botswana, Malawi, Mozambique, Namibia, Nigeria and South Africa) are scheduled to hold elections in 2019 which is likely to affect economic activity in those countries.
Massmart is well-positioned to provide a high quality merchandise offering to the sub-Saharan continent which has a young and growing population; rapid urbanisation; and widespread mobile technology adoption
A positive outcome to the elections may create an opportunity for improved consumer confidence
IT and digitisation of business
Our customers expect a seamless omnichannel experience when dealing with our stores. Developments in artificial intelligence and big data analytics are disrupting traditional retail models, presenting a business risk, as well as new opportunities for value creation. Digitally-connected consumers are becoming more activist, increasing their use of data and expecting highly-personalised interactions.
The significant advances in the processing power, flexibility and affordability of mainstream IT software and hardware, enable us to consider these applications in some of our lower-cost retail and wholesale formats. Rather than have several independent IT development and implementation programmes, we are developing a Group IT strategy and plan to capitalise on technology platforms to create a differentiated advantage through technical innovation and operational excellence.
IT systems’ capability and capacity to support operations and future growth
Inability to innovate as a mitigation against existing, new and changing competitors
Threat of a cyber security breach
Modernisation of IT systems
Effectively utilising analytics and data insights
Responding to changing customer requirements by digitising in-store processes
Improving our omnichannel offering
In an environment characterised by turbulent economic conditions and changing consumer demands, Massmart’s relevance depends on our ability to attract, develop, motivate and retain the right people.
Securing the skills required to drive the Massmart of the future, and having to find these skills amidst intense competition for talent, is challenging. Developments in our operating environment have necessitated that we secure digital, IT, ecommerce, analytics, supply chain and merchandising skills.
To ensure operational efficiencies, during 2018 Massmart relocated Massdiscounters and Masscash head offices from Durban to Johannesburg. Over time the Divisions are expected to benefit from being geographically closer to suppliers, Massmart and other Group operating Divisions, as well as being in the country’s key economic- and talent-hub. In the short term, the relocation adversely impacted those Divisions’ productivity, capacity and corporate memory.
Racial transformation and the economic empowerment of previously disadvantaged South Africans remains a cornerstone of government policy. These are also key long-term focus areas for Massmart, not only because it is policy but also because it is the correct thing to do from a corporate responsibility perspective and that it will result in a more inclusive and sustainable South African economy. Despite having the highest BBBEE score in South African retail, there remains the possibility of Massmart being perceived to be making insufficient progress with transformation.
Driving transformation within our management and workforce and broadening our supplier pool through the SDP
Investment in community store CSI programmes through the training of local entrepreneurs and the employment of graduates
The United Nations Sustainable Development Goals (SDGs) set a long-term agenda to end poverty, protect the planet and ensure prosperity for all by 2030. We believe that, as a retailer, Massmart can play a pivotal role in the attainment of these goals by advocating responsible business practices to our suppliers and responsible consumerism to our customers, recognising that a prerequisite for doing this credibly requires that we embrace the principles of responsible corporate citizenship. Our core purpose is to save customers money so they can live better. We make a contribution to national and global developmental objectives by delivering on our purpose in a way that creates economic opportunity, enhances the sustainability of our operations and value chain and strengthens local communities. Massmart has identified and prioritised 14 SDGs, where we believe we can have the most meaningful impact.
Failure to meet expected standards of responsible business conduct
Failure to meet Food safety and hygiene at stores and manufacturing facilities
Failure to address health and safety issues across our facilities
Ineffective management of labour/union relationships