South Africa’s retail market is set to be shaken up in a big way following the entry of US giant Wal-Mart and ill prepared competitors will suffer.
This was part of a view presented by Natalie Berg from a US based global retail research firm, Retail Planet who has also co-authored a book titled; Wal-Mart – Key Insights and Practical Lessons from the World’s Largest Retailer, scheduled to be published in July this year.
Wal-Mart’s entry into SA through acquisition of controlling stake in Massmart has been greeted with widespread concern that it will kill local players together with their suppliers as it brings in a globalised supply chain.
Berg who was on speaking tour in South Africa at the behest of the South African Council of Shopping Centres (SACSC) was quoted in the council’s statement saying “Wal-Mart will be a major competitive force…” This will largely benefit the consumer and warned that competitors who are not prepared will suffer.
While noting that Wal-Mart’s entry to the local retail landscape strengthens the market position of retailers attracting different customers, such as Woolworths, others will find themselves making fundamental changes to face the new competition. Berg said there were many ways local retailers can complete with Wal-Mart but price is not one of them. She noted that in the local retailers should rather take advantage of Wal-Mart weaknesses, rather than trying to fight on its strength – price. As a warning sign, she notes that in the last 20 years 30 food retailing supermarket groups in the US closed bankrupt.
Retailers with a high non-food share are most at risk. “Wal-Mart is likely drive frequent trips through a supercentre FoodCo format and offer cut-throat prices in non-food thanks to global sourcing.” She proposed delivering a retail experience that is about more than just price.
“Invest in loyalty schemes to reward and retain your most profitable shoppers. Store remodels, ancillary services and private label quality investment will help you to differentiate, while making higher margins for reinvestment in price.”
“Build strengths in areas where Wal-Mart has traditionally struggled, such as perishables and counter service. Establish credibility in food ranges now. There’s also opportunity to beat Wal-Mart in the digital chase, where it has lagged,” said Berg.
Berg emphasised that the fundamental to the Wal-Mart model is its “everyday low prices (EDLP)”, achieved through “everyday low costs’ (EDLC)” and global sourcing.
“Wal-Mart is spending the first year understanding the local consumer, the market and competition before making any major changes. In the long-term, it will embark on supply chain efficiencies to invest in price,” said Berg. “Wal-Mart’s famous everyday low prices won’t happen overnight, although support from Massmart is likely to speed up the process.”
She said the ‘learning period’ gives local suppliers and retailers a chance to adjust, adapt and prepare for Wal-Mart’s formidable retail model to kick-in. “Right along the distribution chain from warehouse to store, Wal-Mart will find more efficient ways of retailing in a bid to offer lower prices in store”.
Berg said suppliers who hope benefit from Wal-Mart’s chain should also shape up. Wal-Mart has three goals: to be supplied 100% by renewable energy, to create zero waste and to sell products that sustain people and the environment.
Berg said suppliers will be expected to help Wal-Mart achieve these goals and drive efficiencies through initiatives such as shelf-ready packaging. “SA suppliers should also be prepared for a sustainability assessment, for energy cost reduction, material efficiency, responsible and transparent sourcing and ethical production”
Berg added that South Africa should expect Wal-Mart to investment in Game Foodco format. “This is Wal-Mart‘s bread-and-butter and will likely be a major growth opportunity for suppliers that meet Wal-Mart’s cost and sustainability requirements”.