SA retailers are 15 to 20 years behind the world’s leaders – Grant Pattison, Massmart

Three years ago I spoke to Massmart CEO Grant Pattison shortly after he’d made his first trip to Bentonville, home of his group’s new controlling shareholder Walmart. How do SA retailers compare, I asked? Having had an initial look inside the US giant, Pattison replied that in his view locals were around five years behind the US giant. He’s had plenty more interaction since, getting an intimate appreciation for the science of retail, Walmart-style. It’s been a steep learning curve. In this interview Pattison estimates SA retailers to be a lot further behind where he initially thought – and reckons even with Walmart’s help it could take 10 years to get onto par. That road has already begun with intensive internal focus reflected in pedestrian financial results for the half year to end June. In this wide ranging interview, Pattison takes us through the challenges and opportunities of running Africa’s second biggest retail  group. We kicked off the interview by playing him a clip of Whitey Basson, CEO of the number one retailer Shoprite, who was kidding around – asking whether Massmart was actually still in the SA market……    

For the video of our interview on CNBC Africa’s Power Lunch, please click here.

ALEC HOGG: Grant Pattison, Chief Executive of Massmart is with us in the studio. Whitey Basson’s always got a quip, hasn’t he? Who’s

Massmart? Are they here? Do they still exist?

GRANT PATTISON: Well, you know Whitey is the senior statesman of the retail industry so I think he’s earned the right to comment on the industry and I like Whitey a lot.

ALEC HOGG: Gee, but you’re working hard because you’ve gone a bit grey. I don’t know who the senior statesman in age is now. What’s the difference in your age, Grant?

GRANT PATTISON: I’m 42.

ALEC HOGG: He’s probably got 20 years on you so we’ll give him the senior status.

GRANT PATTISON: He’s the senior statesman. We respect that.

ALEC HOGG: But he does also say that you’ve been quiet. He hasn’t seen much of you in the marketplace. Has that been intentional?

GRANT PATTISON: Well, I think in part he’s right and in part he’s wrong. I think the bit where he’s right, is it takes some work to complete a transaction. You know, it’s not over when we come and sit here and say it’s been announced. We’ve been hard at work integrating with Walmart, learning to work with them, learning the language, extracting value from them and patching our business up. We did a lot. We built DCs (Distribution Centres). We’ve gone into food retail. We’ve done a lot of new stuff and at the moment,  we’re feeling settled. You’re going to start hearing more from us soon.

ALEC HOGG: I don’t know if you recall, but just after you did the transaction, we spoke. You said at that time that we’re a long way behind in South Africa where Walmart was. Was that just a knee-jerk or have you found out that there’s a lot to do?

GRANT PATTISON: Yes. In fact earlier today at the presentation, what I said was, “If you want to know the greatest thing that’s changed pre-transaction/post-transaction” I would have said to you “Alec, we’re a world-class retailer”. I now know that we’re not. I’ve sat around with ASDA. I’ve sat around with Walmart Canada and Walmart USA and these guys do things we haven’t even thought of yet. And so I would now describe us as reasonably un-advanced – a reasonably backward retailer, relative to the advanced countries. We’ve got a lot to learn.

ALEC HOGG: How much?

GRANT PATTISON: I would say if we did it by ourselves, 15/20 years behind them. Maybe we can do it now with Walmart’s help in five to 10 years but we’ve got a lot of work to do.

ALEC HOGG: And this set of results that you put on the table for the six months to the end of June: is there progress? Because when one looks at it “headline earnings per share down 10% – operating profit down as well” it would seem to an outsider that there might be a little bit too much internal focus rather than getting into the market.

GRANT PATTISON: First of all we’re reasonably disappointed. I would say it’s more than 50% economic but we must take it on the chin. Perhaps we’ve dropped some balls – particularly in Game – although I think we fixed those. But I would say there’s very little Walmart in these results. We really have been aligning and sorting things out. I think if you look forward into our strategy you’ll see that the stuff we’re going to do now: clothing, e-commerce, a greater shift into food retail and in particular into Africa – into West Africa and East Africa. These are the things that we’ll reflect back on In five years’.

ALEC HOGG: Clothing: Who are you going to be taking on there?

GRANT PATTISON: Well, we are going to be selling clothing in a “hypermarket” format, as a category within an ‘all under one roof’ store. Now Walmart does that and is one of the biggest clothing retailers in the world. Our ambitions are a bit smaller here in South Africa. We just want to be in the category because our stores compete by being ‘all under one roof’ shops.

ALEC HOGG: As far as e-commerce is concerned; I suppose those who are waving the flag – Pick & Pay to a degree and Woolworths as well – you haven’t really been in that area.

GRANT PATTISON: Well, in fact we are catching up fast and maybe we’ve overtaken some. It’s another great privilege I’ve got. I get to talk to the leaders of Walmart.com, the second-biggest e-commerce business in the world.

ALEC HOGG: And your learning is from them?

GRANT PATTISON: There’s huge learnings. There’s some technical challenges, we know the steps we’ve got to take, and we’re on there. I think Dion Wired is now the best online and leading online electronics retailer in South Africa and our turnover is up 220%, we’re getting really good. We’re about to re-launch it in a couple of months. But what I’ve learned is that as a bricks and mortar retailer you’ve got to worry as much about the effect e-commerce has on the consumers, as it has directly on your business so I’m less worried about the quantum of sales. We’ll participate in that. I’m more worried about what it does to the way people buy? Dion Wired’s staff tell me when I speak to them, no-one comes into the store who hasn’t already been online and seen what’s available, seen what prices they are and asking them questions.

ALEC HOGG: It’s a bit like the motor industry where 80% of the purchase decision is made at home?

GRANT PATTISON: Correct.

ALEC HOGG: And then you come into the store maybe just to close the transaction?

GRANT PATTISON: Ja, and the scary thing is that’s going to happen to electronics and TV’s. But one day it’s going to happen to tomatoes. We’re not there yet but one day you’re going to buy your tomatoes because you’ve learned something about tomatoes. You bought them last month. And all you’re going to do is go to your computer and say ‘I had four packets of four last month. I’ve got some left. I think I’m going to have two’ and you’re going to press a button.

ALEC HOGG: You mentioned – talking about tomatoes – the fresh side of your business. How’s that been progressing because it is part of the strategy looking ahead?

GRANT PATTISON: I wouldn’t say we’re as good as everyone else, you know. There years ago we had nothing. We’ve had to learn how to buy meat, about fruit and vegetables, about deli, about cheeses, about milk for refrigeration. We’ve learned a lot. We’ve been helped here. ASDA is very good at this and so they’ve sent out their experts and helped us. We’re in the market now. That’s how good we are. We’re not leaders. We haven’t changed anything. We haven’t changed the market, but that’s coming. We’re learning fast.

ALEC HOGG: As far as the rest of the strategy – the three year planning process: Who did that, Grant? Was it your South African team or did you bring experts in from Walmart – from ASDA?

GRANT PATTISON: So the way it works is; I’m part of a region which includes ASDA and Walmart Canada. You may ask ‘why Walmart Canada?’ Those are very, very good leaders and very good companies, so I participate in a local process. I work with them and learn a lot from them. I’m getting perspectives that very few people ever get. To be part of that type of organisation and then go off to Walmart. I participate in their process. So its a three level process – finally approved by the Massmart Board. I’m being influenced by what’s happening in Mexico, in China, in India, in ASDA, in the UK and America. There’s a lot of inputs.

ALEC HOGG: And one of the big parts of this is moving into other parts of Africa – the continent?

GRANT PATTISON: Correct.

ALEC HOGG: Our colleagues in Kenya want to know what is going on there. Three of the retailers are apparently going to be bought out by you. That’s what the rumours are.

GRANT PATTISON: Most of the stuff that you’ve read out of the Kenyan media, is accurate and consistent with what we’ve always said. We’re interested in the market. We are interested in going there either in greenfields or partnering with someone. We are very interested in food retail, and are going to take Game warehouses there.We are talking about partnerships in food retail.

ALEC HOGG: And looking ahead generally, your prospects – the picture you paint is not a very happy one.

GRANT PATTISON: No – exactly. Economically, what I have concluded, is that I can’t see something to save us. Sometimes you sit on a cycle and you go ‘do you know what? I’m going to ignore the cycle. It’s going to turn up the other side and I’ll be fine’. Here I’m a bit worried. I look for – as Clem Sunter certainly would say – flags that would say something’s going to turn around and I can’t see any. So I think what we’re doing is saying ‘I think we’re in for a period of low growth. Let’s plan around that. Let’s shift some of our efforts into non-South African countries’. We’ve been – in the past – reasonable risk-adverse and cautious about that. I think we’ve now shifted gear and said it’s time to apply more of our resource in that direction. So I’m excited about the business. I’m excited about expanding outside of South Africa. I’m not excited about the economy and I think consumers are going to be under pressure for some time.

ALEC HOGG: Just to help us through there: 19 new stores in the next three years, but only ten to 15 outside of South Africa.

GRANT PATTISON: It may be more. It may be less. What I don’t want to get caught at, is making big promises outside of South Africa and then under-delivering. Property is hard but we’re working harder to change that. Walmart is funding us now to buy our properties. Previously we had to find someone else to fund them so that’s one problem that’s gone away.

ALEC HOGG: Thanks, Grant. It’s an interesting story and it is one that we’ll be continuing to follow. The Massmart story or Walmart story into Africa. That was Massmart Chief Executive, Grant Pattison.