As an African Retailer operating 443 stores across 13 sub-Saharan African countries in both urban and rural areas, Massmart has access to a broad consumer base. As reflected in our Retail sales, trading conditions over the past year have proved to be challenging. We have identified six significant trends that have a material impact on Massmart’s ability to create value.
In determining these, consideration was given to the Group’s strategy, the interests of key stakeholders, media coverage or public concerns and key risks and opportunities facing the business.
Effective turnaround of the business
In 2019, Massmart reported its first loss. This necessitated the implementation of a turnaround plan to improve margin and better serve our customers. Our turnaround plan is focused on four key pillars which include:
- Restructure the Group operating model to optimise serving our customers while ensuring our competitive market agility and efficiency
- Portfolio optimisation to ensure the relevance of our store portfolio and corresponding CVP
- Supply chain optimisation to unlock value and position our supply chain for long-term success
- Cost reset through a holistic focus on price, consumption and specification
These turnaround priorities are significant in their own right and their level of interdependency necessitates careful alignment. Success will therefore require discipline and rigour as management will be required to execute effectively on the plan while ensuring an organisational culture that will support change.
- Potential operational disruptions associated with this process
- Impact on our associates’ morale and motivation
- Resistance to implementing new ways of working.
- Cultural shift towards having a low-cost mindset and leveraging our relationship with Walmart
- Closely measuring and monitoring our progress against our turnaround pillars.
A constrained consumer environment
With sustained high levels of unemployment, currency weakness and falling consumer confidence, consumer disposable income levels remained low. The unfavourable trading environment has resulted in a marked slowdown in sales growth. Retailers have had to compete aggressively to capture a share of the consumers’ wallet. Consumers remain persistently focused on promotions as they look for value, making it increasingly difficult for retailers to maintain margins.
Forecasts suggest that retail sales growth will remain under pressure, the same goes for consumer spending and disposable income, and the subdued economic environment is expected to persist. Massmart serves all consumer segments from LSM 1 to LSM 10 and our product mix comprises 43% Durable Goods and 57% Food & Liquor. This relatively high exposure to Durable Goods sales categories means that parts of our business feel the impact of any slowdown in consumer spending more intensely.
- 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.
- 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.
The headwinds facing the South African economy continue with sluggish economic growth, a high unemployment rate, subdued business and consumer confidence, deteriorating state infrastructure, load-shedding, and struggling state-owned enterprises. These challenges have been further exacerbated by the global outbreak of the coronavirus, COVID-19, and the recently announced 21 day nationwide lockdown from 27 March 2020 to 16 April 2020. We do not expect the economy and trading conditions to improve substantively over the next few months. Trading conditions in the other 12 countries in which we operate also remain challenging with weakening domestic economies and depreciating currencies.
It is during times like these that our customers need us the most, because of the value we offer by saving them money, so they can live better.
- Volatility of the Group’s African operations
- Increase in cost of goods and operating expenses undermining the low-cost foundation of the business
- The high level of uncertainty, due to the unpredictable outcomes of COVID-19, complicates the estimation of the financial effects of the outbreak and could materially impact the results of the Group negatively and the assumptions applied in our assessment of provisions and impairment considerations.
- Focus on becoming a more cost-efficient retailer, recognising that every Rand matters
- Working together to be unbeatable together by optimally leveraging our procurement scale and ensuring we are able to get the best deals for our customers
- Being Powered by Walmart and leveraging Walmart’s expertise in retail best practice
- Priorisiting the health and safety of our associates and customers and implemented measures to stem the spread of coronavirus.
IT and digitisation of business
The digital world continues to evolve at an unprecedented rate disrupting traditional retail models, presenting a business risk, as well as new opportunities for value creation. Digitally connected consumers are becoming more price-savvy, are engaging in more activism, and expect highly personalised and efficient interactions with our stores.
We rely extensively on our IT infrastructure to process transactions, summarise results and manage our business. This includes point-of-sale transactions, product forecast and replenishment, labour scheduling and financial planning and reporting. Any interruption to our information systems may have a materially adverse effect on our business or operations. In addition to developing our technology, we must develop the skills and capabilities of our people. This will be critical to providing a seamless customer experience.
- 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.
- Ensuring digital awareness and capacity within the Group by establishing a multidisciplinary Digital Steering Committee and Digital School
- Establishing Group-wide information security capability to better protect our systems
- Reallocation of capex from rolling out stores to technology deployment
- Responding to changing customer requirements by digitising in-store processes.
Talent and change management
Massmart’s ability to develop, motivate and retain the right skills will be critical to achieving our objectives to transform the business and the culture. As we transform our business, the calibre of our associates will be integral to delivering on operational and strategic objectives. Our associates shape our customers’ in-store experiences and enforce the store standards that, in turn, drive footfall and on-shelf product availability. However, securing these skills amidst intense competition for talent is challenging.
Our turnaround plan will require that we prioritise our people to minimise the impact on morale and motivation. Transformation will also require that we align the broader business change strategy while developing and executing change and communication interventions.
- Section 189 implications
- Potential operational disruptions associated with the above process
- Talent retention and succession.
- Implementing an integrated talent management programme ensuring that we have the right skills to deliver on our turnaround plan and serve our customers better
- Continue to heighten associates’ engagement and retention while presenting a compelling proposition for new entrants to the Group; including the formation of our Diversity and Inclusion Committee.
We recognise that a prerequisite for success is embracing the principles of responsible corporate citizenship. Our core commitment is to save our customers money so they can
live better. We make a contribution to national and global developmental objectives by delivering on our commitment in a way that creates economic opportunity, enhances the sustainability of our operations and value chain, and strengthens local communities.
The United Nations Sustainable Development Goals (UN 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 in all spheres of the Group. 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.
- Procured over R2.9 billion from small suppliers in 2019 and R1 billion from suppliers on our SDP since inception
- Our contribution towards national and global development objectives
- Auditing food safety and hygiene against the highest global and local food standards.