Wal-Mart targets Africa

07 June 2011

JOHANNESBURG: Wal-Mart, the world's biggest retailer, is developing a new approach as it seeks to expand in Africa.

The US giant recently had its proposed $2.4bn acquisition of a 51% stake in South African counterpart Massmart approved by the nation's authorities.

It believes this could be a crucial base for targeting other local countries, but as one of the first major overseas retailers to pursue such a strategy faces various obstacles, as well as possibilities.

Speaking with the Financial Times, Doug McMillon, chief executive of Wal-Mart International, suggested the company would draw on the lessons yielded by geographies from China and India to Latin America.

"They use more manpower, more muscle and sweat, to move freight in some of the emerging markets than we do in some of the developed markets," he said.

Rising affluence levels are encouraging the growth of an increasingly sizable middle class across Africa, helping places like Nigeria, which has a population of 150m, gain greater appeal.

But the substantial differences within and between nations, alongside the complex conditions and regulations often restrict businesses, mean a nuanced model is essential.

"You see a market like Nigeria and it feels like a big opportunity," McMillon said. "But ... we've learnt over the past few months, we really need to think about it a city at a time as opposed to a country at a time."

As a result, Wal-Mart intends to support plans laid out by Massmart, involving constructing 140 stores during the coming three years within South Africa itself, and another ten elsewhere in the region.

This will add to an existing 263 Massmart branches across South Africa, 11 in Botswana, three in Namibia, two in Lesotho and single sites in eight other countries including Nigeria and Uganda.

"We'll let them make those decisions, we'll give them resources, we'll make capital available, we'll give them the knowledge we have," McMillon said.

Further priorities incorporate boosting the range of fresh food on sale, and pushing into  categories including electronics.

Syd Vianello, a retail analyst at Nedbank Capital, predicted these tactics should prove sensible, given "pockets" of relatively prosperous shoppers are the norm.

"If you go into the outlying areas ... there really is very little purchasing power," he said.

More broadly, problems linked to fledgling transport links and bureaucratic issues must be successfully overcome.

As such, Wal-Mart may need to build a strong infrastructure rather than relying on the technologically-driven logistical management and cost savings it has traditionally emphasised.

Data sourced from the Financial Times; additional content by Warc staff