Wal-Mart makes slow progress navigating Africa's challenges

Tue Jun 2, 2015 9:19am EDT
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By Tiisetso Motsoeneng

JOHANNESBURG (Reuters) - When Wal-Mart Stores Inc (WMT.N: Quote) spent $2.4 billion on a stake in South Africa's Massmart (MSMJ.J: Quote) five years ago, the world's biggest retailer said it was buying a gateway to high-growth markets in sub-Saharan Africa.

Despite its powerful U.S. backer, South Africa's number three retailer, selling everything from food to electronics, has added fewer than 10 stores to the existing 25 outside its home market since 2010, lagging rival Shoprite, which doubled its outlets to 300.

Massmart's slow inroads into the rest of the continent, touted as the next big growth area, highlight the challenges of doing business in Africa, and raise questions about Wal-Mart's goal of rapid expansion abroad.

"From the start the Africa Rising story was a bit euphoric when looking at it from a retail point of view, and Wal-Mart is now facing the reality," said Boris Planer, analyst at London's Planet Retail.

South Africa's Shoprite, which many investors expected to be a casualty of Wal-Mart's investment in Massmart, has nevertheless pushed ahead in familiar local markets where the U.S. retail giant has moved more cautiously.

"If you want extra growth, you've got to take on that extra risk," said Wayne McCurrie, a fund manager at Momentum Wealth in Pretoria.

"Recognising that risk, by that I mean a severe shortage of shopping infrastructure, Shoprite started setting up warehouses and partnering with developers to build shopping centres and that's why it is in this quick store rollout phase whereas Massmart is a little bit behind."

Guy Hayward, an accountant who took over as Massmart CEO a year ago, acknowledges the need to catch up with Shoprite, whose CEO cheekily asked in 2013: "Where is Wal-Mart?"   Continued...

A man walks past an outlet for Massmart-owned Game Stores in Cape Town, South Africa, June 1, 2015.   REUTERS/Mike Hutchings