Massmart: Building sub-Saharan Africa’s economic sustainability through retail

For the average consumer, a trip to the local Makro store or Builders Warehouse will involve pre-conceived expectations about store layout, availability of stock, price of goods, the quality of goods and of course customer service. Behind the scenes, Massmart, the name behind many of South Africa’s biggest brands, is currently undergoing major changes.

Massmart is the third largest distributor of consumer goods in Africa, the leading retailer of general merchandise, liquor and home improvement equipment and supplies and the leading wholesaler of basic foods.

massmartThe company has four divisions: Masswarehouse (Makro), Masscash (Jumbo Cash & Carry, Shield and Cambridge Food), Massdiscounters (Game and DionWired) and Massbuild (Builders Warehouse, Builders Express, Builders Trade Depot). Makro was the founding entity of Massmart with six stores in 1990, since then the company has been on an acquisition trail – and acquired 378 Shield members in March 1992, 20 Dion stores in 1993 and 26 Game stores in 1999, before acquiring 5 Builders Warehouse stores in 2003.

The Johannesburg-based business became publicly listed in July 2000 and last year achieved turnover of R62 billion. Massmart runs 381 stores, of which 337 are located in South Africa – and employs approximately 30,000 permanent and flexi-time staff.

Little wonder then, that in 2011, US giant Walmart saw the business as an attractive proposition and acquired 51 per cent of Massmart in a takeover which is changing the approach to supply chain management.

One of the company’s main objectives is to bring more small suppliers into its supply chain. The direct farm programme is one of those initiatives and has since seen almost 500 tons of fresh produce procured from small holder farmers.

The process of on-boarding and readying new entrant farmers for production for sale to formal markets is challenging, but is already showing the first signs of economic and employment opportunity in the rural economy, as Sherry-Lee Singh, Project Manager on the Supplier Development front, explains:

For the last year I have been engaged in helping to scale up our Direct Farm Programme, which aims to select and help to nurture small and medium sized enterprises so that they are able to supply Massmart with fresh produce in a sustainable manner.”

The new entrant farmer programme forms part of Massmart’s Supplier Development Fund which will spend R200 million rand on small and medium sized enterprises to link these enterprises to Massmart’s supply chain over 5 years.

We are specifically focussed on smaller and medium sized businesses that can supply Massmart with a range of products from produce to building materials suppliers, for example.  We think that roughly 40 per cent of the funding will go towards direct farming, 40 per cent to support manufacturing small and medium sized enterprises and 20 per cent with service companies providing services procured by Massmart or providing services to small and medium sized enterprises that are the suppliers of Massmart.

We have set very ambitious goals and with our Direct Farm Programme we are entering a fresh space and want to become a significant player in South Africa. We are aiming to involve 1,500 farmers in our supply chain by the end of 2016.”

It is an engaging process and undertaking, involving identifying prospective suppliers, understanding their capabilities and capacities, providing training and support to address gaps and providing support and infrastructure to make the partnerships sustainable. Not to mention ensuring quality and food safety is not compromised.

Our first anniversary takes place this August and we have already grown from 40 farmers last year to 162 enlisted to supply us in 2013. We hope to grow that figure to 250 farmers by the end of the year,” Singh affirms.

In farming it is well known that South Africa has challenges to develop new entrant farmers to be able to operate at a full commercial level and we have had more respondents than we have capacity to respond to at this point. Where we can’t immediately respond, we will seek to roll-out training for those farmers showing promise as future suppliers. We aim to match local produce to local markets, so for example and to the extent possible farm products produced in KwaZulu-Natal, would be sold in our KwaZulu-Natal stores.

We have entered a partnership with the NGO Technoserve who have previously worked with Walmart in other markets and have a local office in South Africa. This has been a mutually reinforcing partnership and they have the capacity and expertise to enlist the right support (such as agronomist and mentors) on farms. Their role involves training farmers and providing technical production knowledge and support on a day to day basis.

On our side we are able to bring trading skills and marketing skills so the combined efforts of the partnership aim to bring sustainability to the farmer.

On the manufacturing side we are looking to push vetted and high potential opportunities and to our buyers and offer our buyers the ability to recommend prospective new small and medium sized enterprise suppliers to us.”

Whilst Massmart’s Supplier Development programme is still in its relative infancy, the benefits to local suppliers are already being felt in some quarters:

In the past 12 months we have purchased around R750,000 of wine and opened up export markets for two suppliers: Bayede Wine is now supplying Walmart in China, while Seven Sisters Wine supplies the US market,” Singh states. “Combined these two supplies now have over R3 million in purchase orders for export to these two markets. In the local market we support the developing wines brands in the programme by paying distribution fees and for the in-store marketing of their brands,” she adds.

The new approach to supply chain inclusion has also seen Massmart adapt its produce and distribution infrastructure, as a result of the number of smaller farm suppliers it is looking to bring into the fold.

Many of the farms are small and spread out across the country, so we are looking at models to address aggregation, such as through cooperatives, where a number of small farmers can have their produce safely stored in one place.

We are investing in basic packing infrastructure on farms to support post-harvest storage and loading off farm.  In Limpopo we have invested R1 million in upgrades to packhouse facility that will begin receiving smallholder produce this season. On the manufacturing side, we will look at direct to store delivery models.”

With each hectare of farmland creating on average an estimated 2.4 jobs, Massmart’s investment hopes to create significant employment opportunities on-farm and off farm for South Africa’s poorer inhabitants. The company’s commitment to social responsibility far predates the Walmart takeover but to the extent possible including on Direct Farm is leveraging on global best practices from Walmart International.

Lesego Moagi is Corporate Affairs Project Manager and involved in the company’s Corporate Social Investment (CSI) programme:

It is important to remember that we are an African organisation and that we operate in Africa as a whole. We realise that we have responsibilities beyond what is legally expected of us and in essence it is just about doing the right thing.

Long before the introduction of our supply chain initiative we were investing one per cent of our net profit to social causes,” he impresses.

“As a general retailer and food retailer we look at our strengths and we have three focus areas for our CSI programmes: education, nutrition and early childhood development.

“In South Africa the education system needs to be better and as a private entity we wanted to contribute – we want better educated consumers and better skilled prospective employees for the country.”

Moagi says that rather than donating cash, Massmart has concentrated on providing cash equivalent products or services. A prime example is the group’s Builders Warehouse brand, which provides DIY products to the market.

BW donates products such as has used its products to help maintain schools and libraries.

In partnership with the Department of Basic Education, we have also pioneered and contributed to a number of school feeding initiatives, converting container units into kitchens. Our philosophy is that you cannot teach a hungry child – and we have now donated approximately 250 container kitchens across South Africa, where food can be prepared and cooked in sanitary conditions,” Moagi adds.

When the Walmart transaction came to fruition, the global giant donated $US 1 million into the Container Kitchen programme, which funded 80 kitchens.

We also focus on youth initiatives and have an Enterprise Development Fund which aims to stimulate economic growth among the poorest members of the population. Among our successful projects has been a partnership with Hot Dog Cafe, a franchise outlet that runs a cadet programme for unemployment youths.

We provide access to hard-to-find retail space low interest investment loans to the most talented, to enable them to open Hot Dog Cafe franchises at our standalone stores. This programme, which enjoys wide customer support has been running since 2008 and has proved a huge success, we have 51 franchises at various Massmart stores and these have created 120 sustainable jobs, with more stores planned,” Moagi describes.

Other programmes include an initiative to fund rural businesswomen to help provide training and equipment to boost their businesses in the poorest areas of the country, while a partnership with the South African National Defence Force has created the Goodwill Parcel Project – which delivers food parcels to 5,500 families of servicemen stationed out of the country, often under UN mandate, during the Festive Season.

Massmart is also very focussed on environmental sustainability initiatives, as Alexander Haw, Group Environmental Manager explains:

Broadly, Massmart has three key accountability themes: to enable sustainable supply and consumerism; to champion social equality initiatives and to minimize the group environmental footprint.

At an operational level “Massmart has prioritized energy efficiency, operational waste reduction and water efficiency and since the opening of the first new generation Vaal store in 2011, Makro has  prioritized the construction of “greener” more energy efficient stores. Subsequent to Vaal, the company has opened a further 6 new generation Makro stores, the latest being Alberton,” he states.

Each new generation store makes use of a range of technologies to reduce total electricity consumption and improve energy efficiency, these include:

High performance C02 refrigeration and condensate harvesting – where the refrigeration plants installed in new stores are 18 per cent more energy efficient than those running in legacy Makro stores and 35 per cent more efficient than the systems traditionally found in the market.

Fundamental to the energy efficiency of the refrigeration systems in new Makro stores is the use of harvested condensate to improve the refrigeration plants’ Coefficient of Performance (COP). When ambient temperatures exceed 27 C the efficacy with which the refrigeration plant cools the air entering the building drops significantly.

By using harvested condensate to increase the humidity of the air entering the refrigeration plant on hot days, Makro can improve the refrigeration plants COP by approximately 60 per cent, significantly reducing the stores overall energy consumption. New generation fridges also make use of CO2 and ammonia in their refrigeration plants instead of ozone-depleting refrigerant gasses, which helps in reducing fugitive gas emissions from the stores.

Our Daylight Harvesting initiatives make use of specially designed skylights which capture and diffuse sunlight and direct it in store, without heat build-up. They work in conjunction with lighting controllers that measure lighting levels in the store and turn lights on and off as required. This initiative assists in reducing lighting demands by between 30-40 per cent.

Other initiatives include thermal storage systems that reduce on electricity usage associated with air conditioning processes – and LED lighting, with the Makro Alberton store pioneering 100 per cent LED lighting.

The last two years have seen a number of phenomenal changes in Massmart as the group builds a business and brand very much for the people. It outlines a strong focus on building and expanding its presence in SA and in the rest of Africa.