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Our strategic priorities

The customer and retail landscapes in our target markets are evolving rapidly. In South Africa, most retailers have large market shares (more than 10%) but are facing a low-growth market which is causing increased category and format innovation but also price competition. Retailers are experiencing margin pressure as operating costs increase above selling prices. Retailers across the board are cutting costs to support price leadership, driven by new capabilities in digital and analytics.
Continued success in the current retail environment requires that Massmart: fully leverages Group scale and achieves market-leading efficiency in order to support potentially lower gross margins; innovates and expands into new value pools (whether retail formats, new market channels or product categories) to capture market share and create growth opportunities; builds distinctive, new capabilities in digital and analytics to allow better commercial and operational efficiency and becomes increasingly customer centric; and leverages its knowledge of consumers to build a distinctive customer value proposition.
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Improve and grow our core business
To drive the growth and profitability of the core South African business over the medium term
Progress:
  • Operating expenses were well managed and increased by only 5.0% (excluding restructure costs)
  • Unfortunately, sales growth was lower than expense growth which caused Group trading profit excluding foreign exchange movements, interest, impairments and restructure costs to decline by 16.8% to R2.1 billion
  • Continuing the strategy to pursue new revenue streams, we recorded growth of 61% across the VAS product portfolio including money transfers, Lotto sales, RCS credit product sales and extended warranties
  • The Massdiscounters and Masswarehouse DCs were transitioned into Massmart Logistics during the year and will be used as a Group asset
  • We continue to hold strong market shares across a number of our Durable Goods categories, including: large and small domestic appliances; Hi-tech; and most DIY and hardware categories
Opportunities:
  • Leveraging further opportunities to achieve supply chain and logistics efficiencies resulting in improved cost recoveries and stock holdings at the stores and DCs
  • Improving Game profitability through reducing operating costs (smaller store footprints, optimising DC utilisation and more efficient in-store processes) and increasing sales and margin from improved marketing, promotions and new product categories
  • Leveraging scale by establishing Group IT services to reduce IT operating expenses over the longer-run and sharing scarce skills. This includes: building IT skills and capacity in key focus areas; migrating to integrated standardised SAP systems across the Divisions; and improving IT governance and security
  • Driving our VAS (financial services) customer offering across the Group by adding to the portfolio of services offered through working with third parties and building our own bespoke platforms
  • Improving Group Private Label sourcing and branding to offer customers good quality products at competitive price points
Key trade-offs:
  • Most large and business-wide IT changes and implementations can initially bring uncertainty and complexity. To mitigate these will require the recruitment of IT skills and the development of core systems’ capability, which will increase capex costs and the associated depreciation and amortisation of our IT assets.
    HUMAN AND INTELLECTUAL CAPITAL
    FINANCIAL CAPITAL
  • In February 2018, we announced the restructuring of some of the business functions within Massdiscounters and Masscash and the relocation of both head offices from Durban to Johannesburg. The restructures and office moves were completed in late 2018 and caused business disruption and uncertainty amongst staff and management. The relocation however saw all the Divisional buying functions now based in Johannesburg and improved procurement activities across the Group and brought those two businesses closer to the key supplier base.
    INTELLECTUAL CAPITAL
    SOCIAL AND RELATIONSHIP CAPITAL
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Grow Africa
Growth into selected sub-Saharan African countries through opening Builders Warehouse, Game and Masscash stores
Progress:
  • Our African growth plan remains on track and we added 13,409m2 (representing a 5.8% growth) of ex-SA trading space during the period
  • Total Rand sales from our ex-SA stores grew by 3.7%, while in constant currencies these grew by 3.9% and comparable stores by 0.5%. Ex-SA Rand sales growth improved in the second half of the financial year due to positive currency movements
  • Our strong sales performance per store (R167.8 million average sales per ex-SA store) is three times higher than many of our South African competitors. This allows us to build relatively fewer stores but still attract large market shares and, importantly, also allows us to keep operating costs as a percentage of sales low in those stores, which enables price competitiveness
  • We recruited dedicated real estate originators to focus on the key regions of SADC, East and West Africa
Opportunities:
  • The Group expects to add 13 new stores ex-SA between 2019 and 2021 representing a 7.8% compounded annual growth rate (CAGR) of new space, concentrated specifically in Kenya and Zambia
  • Over the long term several sub-Saharan African countries are expected to record strong real economic growth (i.e. above 4% per annum). This growth will be accompanied by a burgeoning middle-class and increased participation and penetration of modern retail – we feel that both trends will support strong retail sales growth over the longer term
  • At the same time we will leverage our South African wholesale Food skills to supply the informal retail markets in selected African countries by supplying to smaller, local retail outlets and traders
Key trade-off:
  • An upturn in commodity prices and positive winds of political change bode well for our long-term view to steadily but cautiously continue to open new stores in selected Africa countries. However, the economies of some of the countries in which we operate have previously suffered from high rates of inflation, currency devaluations and a lack of foreign reserves to repatriate funds, which could pose a risk in terms of financial capital.
    Manufacturing capital
    Financial capital
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Grow online
To expand, improve and refine our online/omnichannel offering in Game, DionWired, Makro and Massbuild
Progress:
  • Over several years Massmart has been aggressive in its approach to ecommerce and is now experiencing good, profitable online sales growth across our formats and has robust internal capabilities. We are successfully leveraging our existing assets – stores and store network, supply chain, marketing, and retail brands – to retain and grow customer loyalty and to disrupt competition
  • The Group’s omnichannel focus, designed to improve customer choice and experience, saw aggregate online sales increase by 56%. This was achieved through our four ecommerce points of presence (Makro, Game, DionWired and Builders Warehouse), which combined registered growth of 74% in online traffic
  • The Group continues to invest considerable capital in driving online sales and all four of these platforms are currently using SAP Hybris
  • Massmart, through Makro, is also operating a marketplace and is leveraging the platform to learn the benefits and challenges of this opportunity
Opportunities:
  • Using our extensive, well-dispersed store network to boost customer convenience at a lower cost and leverage our large-scale warehouse and logistics footprint to maximise economies of scale for the Group
  • Migrating all four of our ecommerce points of presence to the SAP Hybris module which seamlessly integrates with the great SAP retail systems including customer-management and retention modules
  • Expanding our VAS online offering by adding specific bundled services to the VAS portfolio
  • Engaging a large section of the under-served economy with digitally-enabled relevant product offers
  • Utilising customer data to better personalise our customer engagement and boost loyalty
Key trade-offs:
  • While the use of data analytics and the digitisation of our business allows us to analyse customer behaviour, it creates an increased need for data governance to protect our customers’ personal information and to mitigate cyber security risk. A major breach of information security could have a major negative financial and reputational impact on Massmart. The risk is further exasperated by the deliberate acts of cyber crime on the rise.
    Intellectual capital
    social and relationship Capital
  • Although small, ecommerce in South Africa is growing rapidly and has resulted in consumers' needs and expectations also changing, necessitating regular upgrades of websites and their capabilities. Further, speed and accuracy of time-sensitive fulfilment has proved to be expensive and difficult to achieve. Growing our online/omnichannel offering will result in a financial investment in skills and systems.
    Human and intellectual capital
    Financial Capital