Wal-Mart $4-Billion Bid may bring the Crowds to African safari

On October 2nd, 2010, posted in: Oct 2010 News by

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By Ed Cropley and Tiisetso Motsoeneng

LAGOS/JOHANNESBURG (Reuters) – Wal-Mart’s $4-billion bid for South African retailer Massmart could be just the first step by global players jockeying for a strong position in the poor but fast-growing continent.

The move by the world’s biggest retailer to buy Massmart, South Africa’s third-largest store operator by value, turns the spotlight on local competitors Shoprite and Pick n Pay.

But further ahead, Wal-Mart and rivals Carrefour, Tesco and Metro are likely to look beyond South Africa to establish a presence across a continent that will be home to 2 billion people by 2050.

Growth rates of 7 percent or more in many frontier African countries put South Africa’s relatively pedestrian projected expansion of 2 to 3 percent in the shade.

Coupled with the gradual emergence of a middle class after a decade of robust growth and relative political stability, the logic of a ‘scramble for Africa’ by major international retailers becomes compelling.

“Africa has been the big missing component of every major retailer’s emerging market strategy,” said Bryan Roberts, an analyst at UK-based Planet Retail.

“Wal-Mart tends to play the longer-term game in many regions, but give it a few years and it might be looking to build on the single store in Lagos, or the one store in Tanzania or wherever to build up more of a credible regional presence.”

Wal-Mart regional executive Andy Bond admitted such thinking existed in the Massmart deal, telling Reuters that South Africa was “very much a gateway” to the rest of southern Africa.

Beyond its 232 outlets in South Africa, Massmart’s Game and Makro low-margin, high-turnover operations are represented by 24 stores in 13 African countries.

BIG GAME

But in terms of a continent-wide presence, Shoprite, Africa’s biggest supermarket chain, is the prize catch.

The first South African retailer to expand beyond its borders with a Zambian outlet in 1995, Shoprite now has 71 stores in 16 countries, including the oil-rich states of Angola and Nigeria, Africa’s most populous nation.

Shoprite and Pick n Pay also look cheaper than their rival, valued respectively at 21.5 times and 17.3 times 12-month adjusted earnings per share, compared to 26.3 times for Massmart at Wal-Mart’s 148 rand per share bid.

But scooping up a South Africa-run operation to complement emerging market operations in Asia is unlikely to be the end of the story, with analysts predicting further growth via piecemeal bolt-on acquisitions of local African retailers.

That puts the likes of number two Kenyan supermarket operator Uchumi, with 16 stores including one in neighbouring Uganda, or its privately held main rival Nakumatt, firmly in the picture.

Nigeria, a challenging but major draw on account of its 140 million people, has no recognisable domestic retail chain but rapid urbanisation, especially in mega-cities such as Lagos, is creating large concentrated markets that cut supply chain costs, the major drag on earnings in frontier Africa.

UK-based private equity firm Actis said in April it was investing in a $100 million shopping mall in Lagos, and that Shoprite had plans for 70 new shops in Nigeria in the next decade, at least 20 of them in the commercial capital.

Source: Reuters   Image: Reuters

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