host economy, the ability to exercise and benefit from upstream market power, and the responsiveness to labour regimes.
As we know, Wal-Mart entered South Africa through the majority share acquisition of Massmart, which looked fairly similar in operation to Wal-Mart. Massmart has focused on low-income consumers and has operated through ‘big box retailing’.
Wal-Mart entered an already highly formalised retail context. South Africa’s mass grocery retail sector (another name for the formal sector of food retailing) is Africa’s largest in terms of value, worth about US$29 billion (BMI 2013). In 2003, the share of the food retailing market for formal stores (in comparison to informal routes) was already 55 per cent (Weatherspoon and Reardon 2003:1). In 2012, formal channels had increased to account for 62.3 per cent of the food market (meaning that 37.7 per cent was in the informal sector – for instance, hawkers and spaza shops), which is higher than many other developing countries, including Brazil, Russia and India (BMI 2013; see also Weatherspoon and Reardon 2003). Another estimate puts formal food retailing as high as 68 per cent (Planting 2010:34). Regardless of the exact figures, analysts agree that the food retail market is increasingly becoming formalised, with distribution happening through supermarkets.5 Furthermore, it is a growing market in terms of sales: in 2012 mass grocery retail sales were up by 10.4 per cent, with this kind of growth rate forecast to continue through to 2016 (BMI 2013).
South Africa’s formal food retail sector has been highly concentrated into four large corporations – Shoprite, Pick n Pay, Spar and Woolworths – that have accounted for over 94 per cent of supermarket sales (Weatherspoon and Reardon 2003). Another way to put this corporate dominance is that just four firms have held about 50 per cent of the total food market (not just supermarkets) (Ingham 2009)! In 2012, Christo Wiese, chairman of the Shoprite Holdings board, wrote that ‘67 per cent of the country’s adult population buy groceries from our stores. That is more than 23 million people.’6 Indeed, the South African food retail sector has been characterised as ‘an extremely tight oligopoly’ (Botha and Van Schalkwyk, cited in Louw et al., 2007:19). Domestic retailers have also consolidated through mergers and acquisitions to expand to smaller towns and rural areas.
In 2009 on the eve of Wal-Mart’s approach, Massmart represented only 2 per cent of the formal food retailing market but 22.4 per cent of food wholesaling (RBB Economics 2011). Currently, Massmart’s total food sales places it third highest in food retail and wholesale in South Africa. If the wholesale division is excluded, Massmart ranks as the fifth largest of the firms (Macquarie 2013:46).
Thus it is into this retailing context of already existing firm dominance that Wal-Mart entered. Format trends did not result from transnational corporation (TNC) investment, but predated it, with domestic retailers as drivers. Yet Wal-Mart is expected to vastly increase short-term competition in the food market, until it consolidates. Massmart is expected to spend significantly on expanding its food retailing operations in the immediate future (BMI 2013; Kew 2011). For instance, Massmart acquired Cambridge Food retail stores, which it has grown in central business districts and townships, particularly focusing on taxi ranks and other public transit routes. They now have twenty-five stores: ‘Focussing [sic] on consumers within the living standards measure (LSM) 2-7 range, our customers are characterised by high levels of unemployment, reliance on social grants as a primary source of income, and heavy dependence on taxis, trains and busses to travel between work and home.’7 Massmart has posted strong growth of sales across its divisions (BMI 2013). Analysts have noted that Massmart’s late entry into food retailing carries some disadvantages, such as its difficulty in obtaining available sites for expansion; but all see future dominance.8 They remark that Shoprite, with its deeper presence in Africa, and Woolworths, with is specific market differentiation into high LSMs, have the best chance of surviving Wal-Mart’s effect, while Pick n Pay and Spar are most likely to be hit by immediate competition (Macquarie 2013:46).9 Weatherspoon and Reardon (2003:2) noted a ‘rapid transformation of the African food retail sector’ since the mid-1990s towards increasing formalisation, corporate consolidation, the introduction of supply chain management technology, and logistics. Thus, efficient procurement systems, ‘modern’ supermarket formats, and corporate dominance of South African retail were already well underway (and expanding into Africa). While it is early to discern the impact that Wal-Mart’s majority share in Massmart will have on South Africa’s food retail sector, it is clear that it certainly does not diminish the concentrated market power of corporate chains. If anything, it will probably be a mover to push the intensification of formalisation in food retailing.
And, as this analyst report comments: ‘With Walmart likely to be bearing down on prices it is in the supply chain that we think the winners and losers will be separated’ (BMI 2013).
PROCUREMENT AND POWER: SUPPLY CHAINS, LOCAL PRODUCTION AND SMALLHOLDERS
Formal food retailing through supermarkets implies a distribution system which demands larger volumes and, typically, better standards of quality for food. The system also demands coordination between suppliers and retailers. As Durand and Wrigley (2009) note, the ability of retailers to make use of upstream relations with suppliers within host economies, as well as within their global networks, is a critical factor explaining the success of transnational retail capital in different contexts. Indeed, the concentration and expansion of corporate food retailing in South Africa has relied on efficient logistics systems, which have benefited from trade liberalisation and the deregulation of South Africa’s agro-food economy.
Wal-Mart’s legendary centralised distribution and information technology systems, which record ‘real time’ data from branches, allows the store to cut costs through responding quickly to consumer demand and to reduce stock shortages or over-estimations. Stock is controlled through category managers who are responsible for an entire group of merchandise and who work closely with suppliers, not only to specify products but also to promote the efficiency of distribution (Lichtenstein 2009; Fishman 2006). Logistics technology and inventory management have reduced costs to retailers and outsourced risk to suppliers. This ‘retail revolution’ is what Wal-Mart is known for (Lichtenstein 2009; see also Lichtenstein 2006). It has proved to be an important strategy of operation and comparative advantage to Wal-Mart in its overseas operations (Durand and Wrigley 2009:18). Maintaining contracts or relations becomes competitive business for suppliers, where increasing pressure is brought
