When Wal-Mart Stores spent $2.4bn on a stake in South Africa's Massmart [JSE:MSM] five years ago, the world's biggest retailer said it was buying a gateway to high- growth markets in sub Saharan Africa.

Despite its powerful US backer, South Africa's number three retailer, selling everything from food to electronics, has added fewer than 10 stores to the existing 25 outside its home market since 2010, lagging rival Shoprite [JSE:SHP], which doubled its outlets to 300.

Massmart's slow inroads into the rest of the continent, touted as the next big growth area, highlight the challenges of doing business in Africa, and raise questions about Wal-Mart's goal of rapid expansion abroad.

"From the start the Africa Rising story was a bit euphoric when looking at it from a retail point of view, and Wal-Mart is now facing the reality," said Boris Planer, analyst at London's Planet Retail.

Shoprite, which many investors expected to be a casualty of Wal-Mart's investment in Massmart, has nevertheless pushed ahead in familiar local markets where the US retail giant has moved more cautiously.

"If you want extra growth, you've got to take on that extra risk," said Wayne McCurrie, a fund manager at Momentum Wealth in Pretoria. "Recognising that risk, by that I mean a severe shortage of shopping infrastructure, Shoprite started setting up warehouses and partnering with developers to build shopping centres and that's why it is in this quick store roll-out phase whereas Massmart is a little bit behind." Guy Hayward, an accountant who took over as Massmart CEO a year ago, acknowledges the need to catch up with Shoprite, whose CEO cheekily asked in 2013: "Where is Wal-Mart?"

"We all face challenges but Shoprite has done a good job in getting ahead," he told Reuters. Wal-Mart's slow progress in Africa also underscores the struggles the US company faces in pursuing a rapid expansion to 27 countries and 6 300 stores outside the US market. Scott Mushkin, who covers Wal-Mart at Wolfe Research, has argued Wal-Mart should look to exit markets in Asia, Europe and Africa due to lower returns than in the Americas. "We believe these operations are a distraction from what appears to be a fairly synergistic operating model from Canada to Chile," he wrote in a note to clients this month.

Wal-Mart said it was still committed to Africa.

"We are excited by the retail opportunities in Africa and we're confident in the ability of Massmart's leadership to drive future growth," said Marilee McInnis, director of InternationalCorporate Affairs at Walmart.

Filed deals

The last five years in Africa have been punctuated, for Massmart, by deals that failed to come off.

Grant Pattison, who abruptly resigned last year as chief executive, tried and failed to buy Botswana's biggest grocer Choppies Enterprises, Ramachandran Ottapathu, Choppies CEO told Reuters. In Kenya, Massmart was unable to complete a deal with private retailer Naivas because of a family dispute over its ownership.

At home, too, some customers are underwhelmed by Massmart's performance. Famed for its aggressive pricing, it appears to be struggling to compete with Shoprite on cheap groceries. "I was very excited when I heard Wal-Mart is bringing low prices to South Africa but I haven't seen that," said Themba Khumalo, a 31-year old bank teller outside a Johannesburg shopping mall.

Wal-Mart has also had problems in its bid to fast-track the expansion of Massmart's grocery unit Game. Massmart has complained to the competition watchdog against three rivals over shopping mall leases that prevent Game from selling groceries.

Africa rising

Wal-Mart, and other international companies, wants to benefit from a continent poised for dynamic growth fuelled by a rising young population of workers and consumers and global demand for its commodities, an idea known as 'Africa Rising'.

There are promising signs for retailers: Shoprite's Whitey Basson reported "insatiable" demand for big brands after five Shoprite stores in Angola sold more Red Bull cans than nearly all 400 stores in South Africa in one year.

But others are also finding it tough. Woolworths [JSE:WHL], a Cape Town-based upscale retailer, pulled the plug on its Nigerian business, citing high rents and duties.

The Spar Group [JSE:SPP], which runs franchise grocery stores, said its partner in Nigeria has managed to open just five of 20 planned stores, having struggled to find suitable real estate and having to import everything from lighting and tiles to refrigerators.

Pick n Pay [JSE:PIK], South Africa's third biggest grocer by value; recently shut its franchise stores in Mozambique and Mauritius because they were not profitable.

"Retail in Africa is just not that romantic, it's not easy. Anything that looks like an overnight success has probably been around for 20 years," said Pick n Pay chief executive officer Richard Brasher, while stressing the group is still seeking to expand.

A common complaint is the time it takes to get goods from ports to shelves.

"Even if you air-freight the goods and you think within a week your goods could be in store, it may take five weeks," said Ronnie Steyn, chief financial officer of TFG, the biggest reseller of Nike and Adidas products in South Africa.

France's Carrefour, the world's second biggest retailer by sales, has taken a cautious approach. It has focused on China and Brazil as its key markets for expansion, while opting in Africa for franchise deals with strong local connections.

"Going into Africa is still a little bit adventurous in a way, compared to, for example, Asia, which has mega cities and plenty of shopping malls," said Marieke Witjes, a retail consultant at AT Kearney in Johannesburg.

"That's why a lot of international players are still kind of fearful about putting their money into Africa."

Space shortage

Hayward said Massmart remained committed to expanding further into the rest of Africa but cited the familiar list of challenges, including haphazard property laws and poor infrastructure.

Among the biggest is the shortage of real estate space and big malls, something that prompted Shoprite to raise R3bn three years ago to team up with developers to build its own stand- alone stores in markets such as Nigeria.

"Do I advise my clients to stay away from Africa given Wal-Mart's experience? No. Do I advise them to wait until there are enough shopping malls in countries like Nigeria to build critical mass? Yes," said one retail consultant in Johannesburg, who declined to be named.

Hayward said Massmart has started setting up its own stand-alone stores and was also considering partnering with landlords on building properties. The strategy would help Massmart open 19 stores in several African countries by the end of February next year, and increase its trading space by more than 45%, he said.

Gabriel Sacks, investment manager at Scottish-based Aberdeen Asset Management, the third largest shareholder in Massmart with more than 4%, is prepared to be patient.

"Whilst we appreciate the market's frustration with the pace of growth, we are of the view that a more cautious approach to rolling out stores in Africa is no bad thing given our preference for capital discipline," Sacks said.

"Faster growth would be welcome, but not at all costs.”

- Reuter

http://www.peeptrendz.com/2015/06/why-shoprite-is-beating-wal-mart-in.html

Americans will always be brainwashed by CNN with negative reporting while other investors from China and SA are reaping profits from the country.

In another way, Americans are used to the business model of sitting behind your screen and monitoring market index and consumer response, where such system is not in place, they feel handicapped. Nigeria is a country where you put boots on the ground and align with local market forces

ITbomb:
Americans will always be brainwashed by CNN with negative reporting while other investors from China and SA are reaping profits from the country.

In another way, Americans are used to the business model of sitting behind your screen and monitoring market index and consumer response, where such system is not in place, they feel handicapped. Nigeria is a country where you put boots on the ground and align with local market forces

I second that.

look at tecno... without hard work, they wouldn't be having so much success now in the nigerian market. lets not 4gt the "shinko" label ppl gave dem even so now.