Jun 6, 2011
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Wal-Mart ready to get out of planning, into Africa

Jun 6, 2011

June 2 - Wal-Mart Stores Inc hopes that food and conversation can win over shoppers and companies in sub-Saharan Africa as soon as the ink dries on its deal to buy Massmart.

US retail giant Wal-Mart Stores Inc has agreed to buy a minority stake in Chinese online grocery store Yihaodian (Photo: AFP, Spencer Platt)

Wal-Mart's rocky mission to buy Massmart Holdings Ltd went from a full-out acquisition unveiled in September to Wal-Mart switching its stance two months later to buy a 51 percent stake in the South African retailer. A government tribunal granted approval earlier this week, paving the way for Wal-Mart's purchase to close by the end of June.

Wal-Mart wants to use its merchandising and logistics expertise to grow Massmart's sales, particularly in fresh food, where Massmart is not yet a big player. At the same time, it must calm the critics who worry that Wal-Mart's presence will stifle local retailers and suppliers.

"Our actions will end up determining what our reputation is," Walmart International Chief Executive Doug McMillon told Reuters on Thursday. "We're anxious to move as quickly as we can to do some things to give people confidence that we are who we say we are."

Massmart will give the world's largest retailer a foothold in 14 more countries, nearly doubling its tally to 29.

Wal-Mart has been bringing its strategy to other countries since the early 1990s, and has made missteps along the way. It pulled out of Germany and Korea, and decided to leave Russia late last year after a few years of research there proved fruitless.

Wal-Mart continues to look at expanding, but as Cathy Smith, Wal-Mart's international chief financial officer put it, the company does not want to be a "flag planter" and has a list of criteria that must be met for it to enter a market. Those include a growing middle class and a market moving from an informal retail environment to a more formal one.

It makes sense for U.S. companies to expand if they have done their homework. For Wal-Mart, international growth is crucial because sales at its U.S. discount chain have declined for two years.

"Over the past year we've had more and more retailers announce plans to either expand internationally or begin to analyze their options internationally, and we think a lot of this is in response to the continuing sluggish U.S. economy and the need that most retailers have to deliver growth to their shareholders," said John Long, retail strategist at Kurt Salmon.

Wal-Mart declined to discuss specific opportunities, and said that for now it will be busy improving business at Massmart and in countries where it already operates.

McMillon is focusing on improving profitability. The international business is most profitable where it has been the longest, in countries such as Canada, Mexico and the United Kingdom.

"Without slowing down the growth rate, we would like to become more profitable in China and Brazil. As we've continued to invest there, and the businesses mature, it's logical that shareholders should expect a higher return," McMillon said.

In Africa, Wal-Mart has been talking with local companies, trying to explain that it wants to work with them. It plans to quickly expand the limited assortment of food Massmart sells in some of its formats, which should rely on a high percentage of local procurement.

Wal-Mart typically buys 85 to 90 percent of items locally, with a higher rate when stores sell more food, McMillon said.

"I expect sub-Saharan Africa to be the same way," he said.

Sometimes it makes more economic sense to use Wal-Mart geographic reach to offer lower prices. In Japan, for example, Wal-Mart ships in bottled water from Canada to avoid the higher prices charged locally.

(Editing by Robert MacMillan)

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