Massmart draws attention to 'aggressive' market

Market share is the percentage of the total market that a company controls for a particular product or product category.

"Overall if one watches the matrix of promotions and catalogues in the market there is a lot of aggression as retailers fight for market share," CEO Grant Pattison said at a presentation in Johannesburg.

Market share are two words that get SA's retailers very hot under the collar, being the ultimate battle for the biggest piece of the pie in a highly competitive landscape, where consumer spending is gradually recovering.

Wal-Mart, which bought 51% of Massmart last year, is known for its combative pricing strategies that attract thousands of customers into its stores around the world, and according to credit ratings agency Fitch Ratings its presence in SA will lead to stronger price competition.

"We expect that this will lead to some margin pressure among SA's large supermarket chains, which include Pick n Pay, Shoprite, Spar Group and Woolworths and would also over time present a major strategic threat to smaller retailers," Fitch said.

Massmart has wasted no time rolling out its food retail game plan - a space previously dominated by beleaguered Pick n Pay (PIK) and big gun Shoprite (SHP).

On Wednesday it said Foodco, its fresh food offering in Game stores continued to expand over the six months to end-December, with 15 stores now in format.

Five of the group's Makro stores include a Fresh offering and its acquisition of Fruitspot earlier this year will assist Makro with its procurement and distribution of fresh and processed fruit and vegetables, it said.

Massmart's goal is to have 100 stores within the next three years, and a target of a R20 billion food retail business within five years.

Quoting Nielsen's industry growth report on Tuesday, Africa's biggest food retailer Shoprite claimed that it grew market share across all its formats in the first half and was 3.8% ahead of the market.

"Nobody has done better than us, we respect Wal-Mart, but we are not scared," its CE Whitey Basson said.

Shoprite, which has a market capitalisation of R73 billion, reported an 18.6% rise in first-half profit on Tuesday, 21 February.

The company has committed R1.1 billion to expansion, distribution centre upgrades and stores.

On Wednesday, Massmart reported an 18.7% increase in first half profit, helped by strong volume growth as well as the effect of the weakening rand on the group's African businesses. But the retailer said it began incurring costs related to its integration into Wal-Mart. Charges in the period included R42 million.

"It goes without saying that expats are expensive. You pay for the families, the housing, the transport ... No one is being blas? about that - we manage it as hard as we can, and certainly Wal-Mart manages it even harder than we do," CFO Guy Hayward said on Wednesday.

He added that the likely full-year charge would be R170 million.

"We think that that number will settle down at about a R50 million annual charge - but it will probably take about 18 months to get to that figure," he added.

Massmart said sales increased 15% to R31.49 billion helped partly by higher food inflation.

The period under review saw the company investing in a number of areas, including a 6% increase in space growth, trading space is now a total of 1,323,734 square metres and stores stand at 330 following four store closures and 21 store openings.

Commenting on the group's prospects, Pattison said: "The current trends of growth and capacity, including integration costs, will continue through to the end of the year, with sales performing well, but with operating margin under pressure."

The group will open up to five Game stores and three Cash and Carrys in the second half.