Walmart deal costs take shine off Massmart

The R16,5bn acquisition of Massmart by Walmart became effective on 20 June 2011 after receiving Competition Tribunal approval.

Three government departments have subsequently lodged an appeal to be heard by the Competition Appeal Court in October.

But there may be little they can do to stop the bus at this stage however, with Massmart going fullsteam ahead with changes.

A 12-strong expatriate team were already evaluating projects which would be rolled out next month, CEO Grant Pattison said.

"We will continue to aggressively invest for market share gains in food retail. The initial performance of Cambridge, Foodco and Makro Fresh has been encouraging," he said. The group plans on opening 27 new stores next year. The company had also invested heavily in its Cambridge stores, he said.

"We entered the food retailing market to protect our wholesale food business which has come under pressure. There are also communities which are underserviced and we believe there is room for more competition. Our strategy for Cambridge is to focus on commuter nodes and we will hopefully reach 100 stores in the next four years.

"It has been amazing how customers have taken to trusting Game stores with food. We will be rolling out Foodco in all Game stores," he said.

Pattison said the benefits of the Walmart transaction would be delayed and the once-off costs associated with the deal had taken the shine off operating profit.

The group reported an 11.6% increase in sales, a 10.3% increase in trading profit and a 10% increase in headline earnings, excluding transaction costs, for the 52 weeks ended 26 June. Including these costs, operating profits fell 13.7% and headline earnings decreased 22.5%.

Pattison echoed the sentiment of Shoprite CEO Whitey Basson about the legislative environment. "It is ultimately good for us and the consumer as it adds certainty to consumer rights, but it also means there are several acts (of Parliament) to reference and has made the environment complex."

"We will only have a firm view following the first three months' trading of this new 2012 financial year. Early indications are, however, that the consumer environment is slightly better than we thought."

Simone Kruger of Avior Research said the value-add that Walmart would bring would be delayed. "There were no surprises in the results except the once-off costs of turning some stores into Cambridge stores.

"The good growth shown in the first eight weeks of the next financial year is promising, although it is early days," Kruger said.

Source: Business Day