Walmart, the world’s largest retailer headquartered in the US, has announced plans to launch its inaugural branded stores in South Africa (SA) by year-end. Although this marks a new chapter in the local market, the company has been present in the country since 2011 after acquiring a majority stake in Massmart Holdings, which operates Makro, Game, and Builders Warehouse.
Despite the backing from its parent company, Walmart has faced challenges in replicating its international success, leading to Massmart’s delisting in 2022.
Read: Can Walmart succeed where Game did not?
Details regarding the long-term store rollout plan are limited. Kathryn McLay, Walmart’s President of International, mentioned that the new stores will offer groceries, household items, clothing, and technology, with a strong emphasis on locally sourced products. This approach aims to introduce Walmart’s “Every Day Low Prices” to SA while celebrating local culture.
Notably, the press release referred to new store openings rather than transforming current Makro or Game locations. Given the potential overlap in products, particularly with Makro, it raises questions about whether Walmart will test its standalone brand before considering any rebranding of existing stores. Officials anticipate these openings to occur in October.
The extent of Walmart’s commitment is crucial in assessing its competitive threat.
By not rebranding Makro stores, Walmart risks undermining its own business due to overlapping product lines.
Brand recognition presents another hurdle; global success doesn’t always lead to local acceptance — as evidenced by Domino’s Pizza’s struggles to connect with SA consumers despite its international prominence. Walmart may face similar challenges, explaining its cautious strategy of positioning the brand as a complement to local brands rather than a replacement.
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Looking globally offers valuable insights. In Mexico, after acquiring Grupo Cifra in 1997, Walmart adopted a multi-brand strategy: maintaining local brands while expanding Walmart and Sam’s Club stores.
Bodega Aurrerá, the predominant local brand, catered to discount shoppers, while Walmart targeted middle-income consumers. Eventually, only one local brand, Superama, was rebranded to Walmart Express.
This “multi-brand plus Walmart” strategy has been echoed across Chile, Brazil, and Central America, with selective rebranding based on market conditions. The SA launch seems to be following a similar path.
Unlike its 2010 acquisition of Massmart, Walmart’s recent announcement had little impact on local retailer share prices.
At that time, the prospect of a Walmart-backed big-box competitor was daunting; however, the actual transformation proved minimal. By 2022, Massmart had transitioned to a turnaround strategy instead of being a growth driver.
Several factors hindered Walmart’s efforts:
- Regulatory challenges: The Competition Commission imposed strict regulations on layoffs and local sourcing. Additionally, high tariffs and infrastructure issues further limited Walmart’s efficiencies.
- Operational shortcomings: Massmart had not sufficiently invested in cold-chain logistics, complicating Walmart’s grocery-led model of integrating fresh food with general merchandise.
- Competitive response: Existing competitors like Shoprite increased investments in their supply chains, expanded private labels, and solidified their stronghold in fresh food offerings.
- Consumer trends: SA’s prolonged economic downturn shifted shopping habits towards smaller purchases and more frequent visits, misaligned with Walmart’s strategy of larger baskets.
In conclusion, Walmart’s global blueprint conflicted with local realities.
By leveraging its emerging markets strategy, Walmart appears to be positioning its branded stores differently from its existing assets. Success will depend on effectively targeting the right consumer segment and adapting its value proposition accordingly.
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We anticipate that Walmart will focus on the mid-to-upper-income demographic, where larger basket sizes align better with its business model.
The current Makro locations, typically catering to bulk consumers, may not effectively attract this demographic. Given their ongoing struggles, Game stores may be more viable candidates for future rebranding.
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While Walmart overlaps with Makro’s product range and big-box model, the new branded stores could signify a strategic pivot: creating a distinct offering for more affluent shoppers while allowing Makro and Builders Warehouse to serve different market segments.
Currently, information is sparse, and the initial store openings later this year will shed light on Walmart’s strategy. If the global giant can attain even a fraction of its international success, it could reshape the local retail landscape. Nevertheless, SA retailers have consistently demonstrated their resilience and competitiveness.
Shoprite, Pick n Pay, and Woolworths have already proven their ability to adapt and thrive against Walmart in the past, and there’s no reason to believe they will be any less prepared this time around.
Ultimately, competition benefits consumers, and Walmart’s return under its own brand suggests the potential for improved pricing, greater variety, and enhanced choices. However, success remains uncertain. For Walmart, SA presents both a local challenge and a global opportunity.
Robbie Proctor is an investment analyst at Anchor Capital.
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