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 Ā 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…… Ā Ā
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, hasnāt he? Whoās
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 heās earned the right to comment on the industry and I like Whitey a lot.
ALEC HOGG: Gee, but youāre working hard because youāve gone a bit grey. I donāt know who the senior statesman in age is now. Whatās the difference in your age, Grant?
GRANT PATTISON: Iām 42.
ALEC HOGG: Heās probably got 20 years on you so weāll give him the senior status.
GRANT PATTISON: Heās the senior statesman. We respect that.
ALEC HOGG: But he does also say that youāve been quiet. He hasnāt seen much of you in the marketplace. Has that been intentional?
GRANT PATTISON: Well, I think in part heās right and in part heās wrong. I think the bit where heās right, is it takes some work to complete a transaction. You know, itās not over when we come and sit here and say itās been announced. Weāve 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). Weāve gone into food retail. Weāve done a lot of new stuff and at the moment, Ā weāre feeling settled. Youāre going to start hearing more from us soon.
ALEC HOGG: I donāt know if you recall, but just after you did the transaction, we spoke. You said at that time that weāre a long way behind in South Africa where Walmart was. Was that just a knee-jerk or have you found out that thereās a lot to do?
GRANT PATTISON: Yes. In fact earlier today at the presentation, what I said was, āIf you want to know the greatest thing thatās changed pre-transaction/post-transactionā I would have said to you āAlec, weāre a world-class retailerā. I now know that weāre not. Iāve sat around with ASDA. Iāve sat around with Walmart Canada and Walmart USA and these guys do things we havenāt even thought of yet. And so I would now describe us as reasonably un-advanced ā a reasonably backward retailer, relative to the advanced countries. Weāve 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 Walmartās help in five to 10 years but weāve 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 āheadline earnings per share down 10% – operating profit down as wellā 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 weāre reasonably disappointed. I would say itās more than 50% economic but we must take it on the chin. Perhaps weāve dropped some balls ā particularly in Game ā although I think we fixed those. But I would say thereās very little Walmart in these results. We really have been aligning and sorting things out. I think if you look forward into our strategy youāll see that the stuff weāre going to do now: clothing, e-commerce, a greater shift into food retail and in particular into Africa ā into West Africa and East Africa. These are the things that weāll reflect back on In five yearsā.
ALEC HOGG: Clothing: Who are you going to be taking on there?
GRANT PATTISON: Well, we are going to be selling clothing in a āhypermarketā format, as a category within an āall under one roofā 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 āall under one roofā shops.
ALEC HOGG: As far as e-commerce is concerned; I suppose those who are waving the flag ā Pick & Pay to a degree and Woolworths as well ā you havenāt really been in that area.
GRANT PATTISON: Well, in fact we are catching up fast and maybe weāve overtaken some. Itās another great privilege Iāve 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: Thereās huge learnings. Thereās some technical challenges, we know the steps weāve got to take, and weāre 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%, weāre getting really good. Weāre about to re-launch it in a couple of months. But what Iāve learned is that as a bricks and mortar retailer youāve got to worry as much about the effect e-commerce has on the consumers, as it has directly on your business so Iām less worried about the quantum of sales. Weāll participate in that. Iām 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 hasnāt already been online and seen whatās available, seen what prices they are and asking them questions.
ALEC HOGG: Itās 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 thatās going to happen to electronics and TVās. But one day itās going to happen to tomatoes. Weāre not there yet but one day youāre going to buy your tomatoes because youāve learned something about tomatoes. You bought them last month. And all youāre going to do is go to your computer and say āI had four packets of four last month. Iāve got some left. I think Iām going to have twoā and youāre going to press a button.
ALEC HOGG: You mentioned ā talking about tomatoes ā the fresh side of your business. Howās that been progressing because it is part of the strategy looking ahead?
GRANT PATTISON: I wouldnāt say weāre as good as everyone else, you know. There years ago we had nothing. Weāve had to learn how to buy meat, about fruit and vegetables, about deli, about cheeses, about milk for refrigeration. Weāve learned a lot. Weāve been helped here. ASDA is very good at this and so theyāve sent out their experts and helped us. Weāre in the market now. Thatās how good we are. Weāre not leaders. We havenāt changed anything. We havenāt changed the market, but thatās coming. Weāre learning fast.
ALEC HOGG: As far as the rest of the strategy ā the three year planning process: Who did that, Grant? Was it your South African team or did you bring experts in from Walmart ā from ASDA?
GRANT PATTISON: So the way it works is; Iām part of a region which includes ASDA and Walmart Canada. You may ask āwhy Walmart Canada?ā 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. Iām 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 ā finally approved by the Massmart Board. Iām being influenced by whatās happening in Mexico, in China, in India, in ASDA, in the UK and America. Thereās a lot of inputs.
ALEC HOGG: And one of the big parts of this is moving into other parts of Africa ā the continent?
GRANT PATTISON: Correct.
ALEC HOGG:Ā 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. Thatās what the rumours are.
GRANT PATTISON: Most of the stuff that youāve read out of the Kenyan media, is accurate and consistent with what weāve always said. Weāre 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 ā the picture you paint is not a very happy one.
GRANT PATTISON: No ā exactly. Economically, what I have concluded, is that I canāt see something to save us. Sometimes you sit on a cycle and you go ādo you know what? Iām going to ignore the cycle. Itās going to turn up the other side and Iāll be fineā. Here Iām a bit worried. I look for ā as Clem Sunter certainly would say ā flags that would say somethingās going to turn around and I canāt see any. So I think what weāre doing is saying āI think weāre in for a period of low growth. Letās plan around that. Letās shift some of our efforts into non-South African countriesā. Weāve been ā in the past ā reasonable risk-adverse and cautious about that. I think weāve now shifted gear and said itās time to apply more of our resource in that direction. So Iām excited about the business. Iām excited about expanding outside of South Africa. Iām 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 donāt want to get caught at, is making big promises outside of South Africa and then under-delivering. Property is hard but weāre 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 thatās one problem thatās gone away.
ALEC HOGG: Thanks, Grant. Itās an interesting story and it is one that weāll be continuing to follow. The Massmart story or Walmart story into Africa. That was Massmart Chief Executive, Grant Pattison.