Game over for fresh food at Massmart’s biggest chain
It was South Africa’s leading discount retailer before its costly move into fresh food.The plan by JSE-listed retail giant Massmart to expand its popular discount retail chain Game into a fully-fledged food retailer has failed.
Launched just over five years ago as a strategy to take on the more established fresh food supermarket players such as Pick n Pay and Shoprite Group, Walmart-controlled Massmart has now officially abandoned that Game plan.
“The fresh and frozen food sections at our Game stores are already on their way out,” Mitch Slape, Massmart’s new CEO, told Moneyweb during a media roundtable in Johannesburg on Wednesday.
“In fact, the move has already taken place at our Mall of Africa store, making way for more general apparel and merchandise as part of our plan to reset Game,” he added.
It was uncharacteristic of the group to speak to the media just ahead of the official release of its 2019 financial results next week. However, it comes just weeks after the group published a sales update and trading statement pointing to a first-ever group loss of almost R1.4 billion for its 2019 financial year.
The update included details of its new turnaround plan, which encompasses an almost total overhaul of the group, including the planned closure of 34 DionWired and Masscash stores. A new, more streamlined group operating model has been established as part of the turnaround plan, in which Massmart’s four previous divisions and various retail and wholesale operations are now part of just two business units – Massmart Retail and Massmart Wholesale.
Game, Builders Warehouse, DionWired and Cambridge Food are part of the retail unit, while Makro and some of the Masscash operations are part of Massmart Wholesale.
“A key priority is to return Game to profitability by restoring sales growth, recovering margins, and improved execution of our low-cost discounter proposition,” says Slape.
“We plan to do this by refocusing the assortment of growth and high-margin categories, which includes the removal of fresh and frozen food and reintroducing clothing and apparel.”
Slape joined Massmart less than six month ago and has had the complex task of putting a turnaround plan together in the midst of the busy end-of-year trading period. He is however a Walmart group heavyweight, having headed up the global retail giant’s operations in India and Japan, among other roles.
Game – which made its name as South Africa’s leading discount retailer before its unsuccessful and costly move into fresh food – has around 130 stores across South Africa and several other African countries.
‘Game Reset’ plan
Slape says as part of the ‘Game Reset’ plan Massmart will go “back to the basics” that made the chain so successful in the past. While he concedes that Game’s move into fresh food did not work out, he was unable to put a figure on the cost of the failed foray.
“Besides exiting fresh food and increasing apparel, we are looking at the basics such as improving stock availability,” he notes. “We also want to improve margin management by reducing reliance on promotions and reducing the cost of goods sold through leveraging Massmart’s sourcing scale.”
Overall, he says the Massmart group has identified potential cost savings of around R1.6 billion, which will be a key part in getting the group back to profitability.
Cost saving avenues include leveraging off Walmart’s technology servicing centre in India and renegotiating rentals with South African landlords as well as agreements with logistics operators. Massmart also plans to reduce the number of its distribution centres from 15 to seven, with the consolidation likely to result in much larger distribution centres that cater for its various retail and wholesale chains.
Wayne McCurrie, portfolio manager at FNB Wealth and Investments, says Massmart’s woes are linked to multiple issues, but SA’s poor economic growth is an overriding factor.
“The group’s internal problems, especially with the losses in the old Massdiscounters division, has not helped matters,” he notes.
“Besides DionWired, Game stores are facing serious challenges. The current Game format with fresh food does not work at all and never really did.”
He says the move into food has been a disaster for Massmart. “So they really do need to go back to the basics of selling general merchandise, white goods, electronics and sport apparel.
“This is what made Game so popular in the first place,” says McCurrie
“However, it is not going to be easy, because of the onslaught of online retail – not just from the likes of Takealot and other South African players, but international players like Amazon. It is a lot easier to buy general merchandise online, and Massmart as a whole will have to seriously up its online game.”