Massmart: Ongoing progress underlines a tumultuous year

Last winter The SA-Mag explored the success and continued evolution of Massmart as the company had embarked upon a major initiative to improve its environmental footprint and work closer with local suppliers. In what has been a tumultuous subsequent year, we revisit some of the key developments to have emerged subsequently.

There was a major surprise in April when CEO Grant Pattison resigned from the Walmart-owned South African retailer after 7 years at the helm. Guy Hayward, its chief operating officer, was named as his successor from June 1st.

GGPMA-127Pattison was candid about the reasons for his departure:

“I had some goals: food retail, the supply chain, e-commerce, corporate citizenry and one other that I didn’t plan which was the Walmart deal, and I’ve achieved all those already,” he said.

“I was faced with the decision: do I create a new goal and spend another 5 or 6 years doing that or do I try somewhere else? Also, the team is strong and the group is well positioned for growth. It’s time to give someone else a go.”

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.

The 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 in 2012 achieved turnover of R62 billion. Last July Massmart was 381 stores, of which 337 were located in South Africa – and employed approximately 30,000 permanent and flexi-time staff. However there were plans well and truly in process, to expand Massmart’s footprint with further stores.

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.

Saverite Xai Xai opening“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.”

In April 2014 came news of another new supplier ensconced in the Massmart initiative. A small factory in the Amathole District in the Eastern Cape is using green energy to manufacture cooler boxes for international retailer Massmart, bringing “significant benefits” to the regional economy, the provincial Department of Economic Development, Environmental Affairs and Tourism announced.

The R4 million Ikusasa Green manufacturing plant in Stutterheim in the Amahlati District was officially opened in April by Mcebisi Jonas, the Economic Development, Environmental Affairs and Tourism MEC.

Jonas said the project was an exciting example of what could happen when a SMME partnered with big business.
GGPMA-64The plant would create 20 jobs in the Stutterheim area, with an additional 10 to 15 permanent jobs within the first two months of its operation, Jonas said.

The cooler boxes, manufactured using green energy and using an innovative roto- moulded process, will be available for sale around the world, said Mkululi Pakade, a director of Ikusasa Green.

The project has received an investment of R4-million from the department’s Local and Regional Economic Development (LRED) Fund, with assistance from the Massmart supplier development fund.

The LRED Fund aims to support the development of new sources of economic activity in small towns as well as new technologies that include energy efficiency.

The company handed over its first 2 cooler box units off the newly installed production line to Massmart at the opening. Ikusasa will hand over 700 units to Massmart for their initial order, worth R610 000.

Moshisi Lehlongwane, supplier development manager at Massmart, said the partnership was a reaffirmation of the company’s commitment to buy from small and medium suppliers anywhere in South Africa.

“They had the right product with innovation and not only will we list their roto-moulded cooler boxes in our stores, but we are putting them under one of our trusted brands, Camp Master.

“Through our supplier development fund we have committed to work with Ikusasa Green to remove challenges such as securing the right moulds, ensuring that their factory complies with national standards, and that they have the right machinery to keep up with orders from Massmart.”

Elsewhere the benefits of Massmart’s Supplier Development programme are also being keenly felt:

“In the past 12 months we have purchased around R750,000 of wine and opened up export markets for 2 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,” Singh stated last year.

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 a pack house 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.

The last couple of years have been remarkable in the transformation of Massmart as the group builds a business and brand very much geared for long-term sustainability.

The departure of Pattison marks the end of an era in which a platform has been laid for a successful future.