Cambridge Food tackles a highly competitive environment
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Maybe it’s the brand’s audaciously bright signage or the smell of freshly baked bread wafting though the air that has lured customers, but the Cambridge Food store overlooking the Bara Taxi Rank in Soweto is surely bustling for a Monday afternoon. In the tough trading environment, vibrant promotional posters are part of a pricing message that is one of glaring obviousness: this is where you come for bargains.
As one of the thrusts of its food retail growth strategy, Walmart-owned Massmart aims to bump the number of Cambridge Food stores up from 47 to 100 by the end of 2017.
The brand, which is part of subsidiary Masscash, targets consumers in the lower living standards measures (LSMs) of 2-7, and services both retail and wholesale customers.
It operates largely from densely populated commuter nodes like train stations, bus depots and taxi ranks, where convenience and value are key. This is the same playing field as rival Shoprite’s Usave and Pick n Pay’s Boxer brand.
Cambridge MD Kevin Vyvyan Day says the stores sell around 1,200 loaves of fresh bread a day. “Hot bread is very important to our business…. Sometimes we have customers queuing for up to 40 minutes just for fresh hot bread…. We have quite a lot of hawkers that buy the bread too,” he says.
The bakery is just one of the service departments in the sprawling 2,500m² store, which also includes a butchery, dry groceries, and fruit and vegetables. The take-away counter is also a draw — featuring a Chesa Nyama on-site braaing service, potjie pots brimming with pap and stew, and a variety of hot foods including the famous Cambridge sausage. “We want to draw commuter feet in every day and give them a reason to shop. We make sure we have appropriate offerings for breakfast, lunch and supper,” Mr Day says.
“It’s a high-quality offering that doesn’t serve only western food but culturally appropriate food, so you will see tripe, chicken feet and samp.
“Our customers can get all the food from the street in a modern environment at a better price.”
Cambridge Food started off in the 1990s with six stores selling fresh meat in KwaZulu-Natal, and gradually began to incorporate groceries. Massmart bought it from founder Brett Latimer in December 2008, shortly after buying retail-wholesale hybrid Thaba Powersave Cash & Carry. “(Masscash) drove an aggressive acquisition trail, purchasing retail cash and carry stores such as Savemoor Thembisa and JD’s Vosloorus. All retail stores were rebranded as Cambridge Food by the end of 2012, which was followed by the acquisition of Rhino Cash & Carry Group,” Mr Day says.
Total sales at Masscash grew by 3.8% on a comparable basis, with product inflation of 4.2%, for the full year ended December, as pressure on lower-income consumers, low product inflation and a very competitive market weighed.
Across the board, retailers are feeling the effect of curbed spending as slowing growth in incomes and in the extending of unsecured credit, as well as the high debt burden and the rising cost of living, put strain on consumers’ wallets. “The competition has certainly intensified, with competitors increasing the frequency and depth of their promotional activity, cutting prices particularly on known-value items, and driving innovative service offerings, including combos, freebies and product subsidisation,” Mr Day says.
With the fall in discretionary spending, Cambridge is seeing a spike in the sale of private-label goods during the middle of the month. Cambridge marketing director Andrew Stein says there is more of a tendency to switch, and the house brand is available in all key categories. “Before, there would be much more brand loyalty. There are also certain categories in which our customers, even those with money, are prepared to buy private label because they don’t see any discernable difference between the two — for example, sugar and oil.
“Also, our customers get their salaries or social grants on the turn of the month and they buy the biggest pack size … sort of like a guarantee of food safety for their family, and as it starts to diminish, they top up with smaller pack sizes,” he says.
Cambridge, like Massmart’s other divisions, is benefiting from Walmart’s best practice when it comes to process and system support, communication methodologies, lowering costs and the in-store experience.
Kagiso Asset Management investment analyst Dirk van Vlaanderen says Cambridge Food gives Massmart a solid footing in the lower LSM retail space, which is gaining share at the expense of lower LSM wholesalers as more formal retail steals share from smaller, informal stores. “We regard the business as a credible competitor to Shoprite’s Usave but it is a smaller player, with Usave operating from 299 stores across nine countries,” he says.
It hasn’t been smooth sailing all the way for Cambridge — the group has made mistakes with locations, split-level stores and customer communication preferences in Gauteng.
Alec Abraham, equity analyst at Afrifocus Securities, says he’s taken a very dim view on Massmart’s entry into the lower-end food space. “My feeling on this for some time now is that you have Massmart trying to get into that space where Shoprite has been very strong and in fact Pick n Pay is also looking more and more to get into that space.
“The reality is that Shoprite has such a competitive advantage, one as a significant first mover — it’s not like they started doing this yesterday — and two, given their investment in central distribution. This means it costs them less to effectively open a store in those areas, than Pick n Pay or Massmart,” he says.
Mr Abraham says this is why Shoprite is so aggressively opening new stores: “They know that competitors are coming into that space and for every prime spot they take, it’s one less for a competitor to get.”
In February, Shoprite said it had committed to 109 store openings, most of them small Usave stores, which are less than 1,000m².
“Massmart still has to set up the infrastructure for distribution into those areas; as they open more stores they also have to incur the costs of supplying those stores. They are a late entrant, it’s going to be very difficult to even start threatening Shoprite in those areas,” Mr Abraham says.
Cambridge employs a mix of centralised distribution and direct-delivery models, with perishables and fresh produce delivered directly to stores.
Massmart’s food foray extends to its Game stores, with FoodCo. Chief financial officer Guy Hayward says the group will continue with its food and fresh produce roll-out “very aggressively”.
“We are now in almost half (Game) stores and we are going to do another 13 conversions this year. We are freshening up the in-store look and feel with wider isles and lower fixturing,” he says.
“We are looking at 30 new-look Game stores this year. We are going to drive food hard. Food brings in more traffic, it also brings in a different customer type, it tends to be moms or families with younger kids.”
Massmart has also launched a pilot project, ValueMart, in Lagos, Nigeria, where it is drawing on retail behemoth Walmart’s distribution and logistics expertise as it extends its food offering north of South Africa. CEO Grant Pattison says the group will develop “power centres” in the rest of Africa as infrastructure challenges and high rentals hinder growth. “We are going to try get access to pieces of land, and on that land put a Builders Warehouse and Game with food in it, or in a low-income market a Cambridge with a Superstore version of a Builders Warehouse,” he says.
Massmart’s full-year food sales were R13bn, up from R10bn a year ago.
In 2011, when Massmart announced its “go big or go home” food plan, the retailer was targeting a food retail business of R20bn in five years. It might just make it. As Andy Bond, former executive vice-president of Walmart, once said: “There’s a sense of boldness, things that might have seemed risky for Massmart to do will now be done with a sense of confidence — their growth strategy will be accelerated further.”
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