Our current portfolio and format choices have led to underperformance in significant parts of our business, including:
- Significant performance deterioration in Game and extreme underperformance in DionWired
- Declining profitability in Cash & Carry with an unclear strategy in Wholesale route to market
- Uncoordinated merchandising strategies and lack of CVP discipline in existing brands
- Limited fresh Food offering and limited strategic focus on development of Cambridge
- Unclear articulation of our strategy to build profitable scale in Africa
The above has resulted in poor customer experience, declining financial results and pressure on stronger business units to compensate. To address this, we have initiated a process to:
- Conduct a comprehensive store review within our portfolio to identify under-performing stores
- Evaluate businesses within the portfolio to determine their fit with the Group and opportunity for future success
- Evaluate geographies to determine where to play and how to win.
During our portfolio review, we have evaluated underperforming stores, Game’s CVP and our Wholesale route to market capabilities:
a. Evaluating underperforming stores:
Our store portfolio and initial business review highlighted 34 persistently underperforming DionWired and Masscash stores with no clear prospects for improvement. As a result, we have taken the difficult decision to commence a potential store closure consultation process in terms of Section 189 and Section 189A of the Labour Relations Act 66 of 1995, as amended; with organised labour and other relevant stakeholders. Approximately 1,440 employees are potentially affected by this process.
b. Reinvigorating Game’s CVP:
Game is a powerful brand with enduring value for middle class South Africans. However, we have executed poorly against our customers’ needs:
- The Game brand does not resonate with key growth segments and its CVP is unclear
- The assortment lacks coherence, innovation and relevance, competitors are making inroads into historic ownership categories and Fresh and Frozen Food categories are not working
- There is an overreliance on promotions, price positions lack distinctiveness, aged stock levels are high and there are high overhead costs
- Customer experience is inconsistent; there are stock-outs in core and promotional lines and long queues with slow checkout and inefficient return processes.
The Game brand remains strong and has enduring value. By resetting Game to be the store it used to be, we believe we will return to profitability and successfully deliver on our customers’ needs.
We believe we have a substantial opportunity to improve our customer offering and return Game to profitability by restoring sales growth, recovering margins and operating as a low-cost discounter. We will do this by:
- Refocusing our assortment on growth and high-margin categories
- Improving margin management by reducing reliance on promotions and reducing the cost of goods sold through sourcing scale
- Achieving an everyday low-cost operating model through spend discipline and lean store practices
- Improving stock availability
- Enhancing online execution.
c. Optimally leveraging Wholesale route to market capabilities:
With our siloed approach to working as separate divisions, and with limited visibility of a Group-wide scale, we did not leverage synergies to deliver unexploited opportunity to lead in the Wholesale and Business-to-Business (B2B) market. We experienced:
- Poor visibility of customer and category performance, insufficient control of merchandise processes and high maintenance costs to maintain multiple systems
- Trading competition reduced profitability and the Shield customer base was not fully leveraged
- The route to market for suppliers was sub-optimal and the Wholesale inbound supply chain was underutilised
- The Group’s General Merchandise scale and expertise was not deployed
- There was an under-utilisation of expertise and siloed investment decisions.
We believe opportunities exist for us to create a consolidated, low-cost Wholesale route to market, with high relevance for suppliers and customers by:
- Having a unified Wholesale leadership and buying team
- Having one ERP, merchandise and point of sale system
- Adding Cash & Carry volumes to our existing inbound network
- Building out our Cash & Carry General Merchandise offering
- Reducing operating costs.
We believe that by doing this we have an opportunity to lead in the Wholesale and B2B market.