Picture: REUTERS
Picture: REUTERS

WHEN Walmart came into South Africa through its 51% acquisition of Massmart in 2011 there was near-hysteria about lower prices and changes to the retail landscape.

This did not happen, apart from some extended promotions. When Walmart-branded batteries entered the country the two leading brands dropped the prices by 20%.

But the retail environment has not shifted much, other than competitors having improved their systems and honed their sourcing.

Absa Investments analyst Chris Gilmour was one of the deal's most outspoken supporters. He expected Walmart to "revolutionise retail" and predicted that within two years South African consumers would see a completely different landscape.

Mr Gilmour now has a different take. "I am profoundly disappointed. I am stunned," he said referring to a dearth of sustained lower prices and slower growth in the group.

Mr Gilmour still believes the retailer is capable of revolutionising food retailing, especially through better importation of private label products but believes political fear is holding it back.

Theresa Heath, retail analyst at Stanlib, said Walmart has not been as price disruptive as everyone expected. "We would all know about it if it had been."

Ms Heath expects lower prices within the Massmart brands to come through as costs of getting goods into the stores and selling them are reduced.

There are concerns about whether South Africa suits an everyday low price scenario, or whether it prefers an occasional bargain and promotional format.

"A lot of people shop at the end of the month. They don't have the ability or culture to sustain spending through the month, especially at the lower-income end," said Ms Heath.

Everyday low prices will come though. Massmart CEO Grant Pattison said Massmart was 10% down the road of implementing the Walmart pricing strategy.

"You can see it at Builders' Warehouse, we're trying it at Cambridge in Gauteng and we'll make some changes at Game," he said.

Everyday low prices differentiate Walmart from rivals that use promotions valid for a few days, with about 50 products at a time being cheaper than they usually are.

Mr Pattison said the model was difficult to implement and he does not want to move any faster.

"It's a fundamentally different philosophy. We may do it in a way you hardly notice, but in two to three years we will be 5% to 10% different to competitors."

Profitability at Massmart was down when Africa's biggest food and general wholesaler released interim results this week.

Profit fell on slower consumer spending growth and the costs of transferring control to Walmart. Sales grew 14.7% to R36.2bn but net profit fell 20% to R722.4m for the six months ending December 23, affected by the costs of Walmart's stake . Excluding these costs, operating profit was up 6.1%.

Charges in the period included final costs related to the sale of a 51% stake to Walmart and a R140m increase in provision for the Supplier Development Fund as determined by the Competition Appeal Court.

It said there was a clear sign of over-indebted or middle-income consumers needing credit to keep spending.

Credit card sales increased from 15% to 24% in Game SA.

* This article was first published in Sunday Times: Business Times