Dek: Following Walmart’s decision to take full ownership of Massmart, any suggestion that the retailer could back out of its African venture has been effectively shut down, and it’s now apparent that the U.S. retail giant is deeply invested in doing business on the continent.
Very few grocery businesses can claim to be truly global. But with around 10,500 stores in 24 countries, U.S.-based multinational retail corporation Walmart can comfortably claim that title.
Yet its international operations, apart from China where it is largely perceived as a successful endeavor, are a far cry from the near-institutional status Walmart enjoys in its home U.S. market.
In Europe, for example, the grocer has all but retreated, retaining only a small equity investment in Asda, after offloading the majority of its interest in the U.K. supermarket chain in 2020.
When it comes to Africa, the picture is even more complicated.
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Having entered the African market in 2011 via a 51% stake in the retail group Massmart, Walmart’s African business has been fraught with difficulty over the last decade.
In South Africa, where the largest share of Massmart stores are located, recent years have seen the economy dip in and out of recession, with sluggish growth only compounded by the pandemic.
To make matters worse, the company was hit by looting during a period of civil unrest last year. Then 2022 brought ongoing supply chain woes, power cuts and a surge in inflation that has significantly dampened the country’s consumer confidence.
More on this: Walmart-Owned Massmart Can’t Overcome Pandemic, Inflation, Other Hurdles
And yet, through the thick and thin of the last 11 years, Walmart has chosen to double down on its African venture instead of abandoning the continent.
In August, the company announced that it was buying the remaining Massmart shares and delisting the company from the Johannesburg stock exchange.
Read more: Walmart to Delist Africa’s Massmart in Deal to Buy Out Retailer
Considering South Africa’s difficult economic situation and Massmart’s disorderly balance sheet, observers might be wondering why Walmart didn’t decide to cut its losses and divest from the retailer as it did with Asda.
But a source involved in the buyout quoted in Reuters this week revealed the strategic reasoning behind the decision to take full ownership of the African business.
“Walmart plans to bring its entire eCommerce enterprise and expertise into Massmart,” the unnamed source said, adding that “big investment is required to keep it relevant.”
Replicating China’s Success In Africa
Taking a company private gives business strategists the freedom to move without being accountable to shareholders. This means Walmart can now absorb losses in the African market in the hopes that plowing money into its flagging business there will pay off down the line.
After all, while South Africa’s economy may have been stuck in the doldrums in recent times, the same isn’t true for other African countries.
Through the various Massmart subsidiaries, the U.S. retail giant now has a footing in some of the continent’s fastest-growing markets. From Uganda to Nigeria, markets that were once disregarded by global retailers due to their low comparative spending power are now on the rise.
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At a time when Walmart’s home retail ecosystem is increasingly saturated, these emerging economies present an opportunity for the company to gain a lead in developing markets, where it can easily outspend the competition.
It is worth remembering that when Walmart opened its first Shenzhen locations in 1996, China barely made the top ten largest economies in the world. Today, retail intelligence firm IGD has forecast that China will overtake the U.S. as the world’s largest grocery market in 2023.
That Chinese example also proves that Walmart is capable of adapting to local markets when the right opportunity arises.
As elsewhere, physical grocery stores in China don’t deliver the same returns they once did, but overall eCommerce sales are booming. That, in addition to a strategic investment and close partnership with JD.com, are helping the company to secure its omnichannel revenues for years to come.
As the Chinese business stated in its first half earnings this year, Walmart’s transaction volume on the platform increased 660% year-on-year. And if the grocer can replicate just a fraction of that success in Africa’s budding eCommerce markets, then it’s surely on to become a global winner.
Further reading: Why Africa Is eCommerce’s Next Great Frontier
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