Walmart helps Massmart with sourcing expertise

25 January 2013

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27 January 2013 | Rebecca Ellinor

Massmart in South Africa has benefited from the sourcing and store-opening expertise of parent company Walmart, according to Walmart International’s CFO.

Cathy Smith, senior vice president of strategy and chief financial officer for Walmart International, was speaking at The Economist CFO Summit in London this month.

Presenting a case study on ‘managing the complexity for growth’, Smith touched on developments that have occurred since Walmart acquired the majority stake in the retailer last year.

She said: “When we met with the leadership team there they said ‘what do we get from Walmart? We run a pretty good business here in South Africa without you guys.’ But what they learned after about 18 months of being part of Walmart is there’s a lot of leverage opportunities.

“There are the obvious ones around scale of purchasing but there are also a lot of less obvious ones. For example, we know how to open up a certain format of hypermarket very well, we’ve got that down to a science and if we can share that you don’t have to relearn those things. Clearly our knowledge around sourcing is something we bring to the table.”

The deal was approved in March last year when the South African Competition Appeal Court determined that the benefits to consumers from the takeover of retailer Massmart by Walmart outweighed the potentially negative effects on local manufacturers. The South Africa Commercial, Caterers and Allied Workers Union had tried to prevent the deal from going ahead fearing it would shift purchasing away from local manufacturers in favour of lower cost products from China, damaging the local economy. But ruling on this point, the judges concluded the consumer benefits were as compelling, despite the potential damage to local producers and workers.

Smith said the company mantra was to help people save money to live better lives and, as such, it had worked hard to move all its businesses to ‘every day low price’. “That means no gimmicks, it truly is every day low price. But not all markets can get there over-night, you have to have the lowest cost structure to have the lowest price structure for our customers. So every one of our markets is moving down this path and it’s a very methodical path.”

Asked how the company streamlines its supply chain, Smith said they source about 70 per cent in every local market so it’s probably not as streamlined as people think but there is a lot of support there.

In May, sustainability expert, Kevin James, CEO of consultancy Global Carbon Exchange, told delegates at the CIPS Pan Africa Conference that he believed the merger had been a beneficial development in relation to local sourcing. In August, Massmart launched a local procurement initiative that it hopes will attract 1,500 farmers of fresh produce over the next five years.

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