Yet the discussions on international retail expansion have moved beyond noting this rapid and visible phenomenon to become more nuanced, suggesting that there are many reasons why transnational retailers do better in some markets than in others. In general, a number of writers have made the important point that transnational retailers require the firm to embed within specific regulatory, cultural and market relations, which changes both local contexts and the retailer itself (Coe and Wrigley 2007; Tilly 2007; Wrigley et al. 2005; Christopherson 2007; Bianchi and Arnold 2004). Writing about Wal-Mart’s entry into Mexico, Tilly (2006) argues that the conditions of entry helped set the terms of its advantage over local firms. Wal-Mart used the North American Free Trade Agreement (NAFTA) to enable it to import products and avoid building local distribution centres; it aggressively reduced prices to challenge local suppliers; and it managed product specifications in detail, putting remaining suppliers under pressure. Yet Tilly also found that local competitors benefited from imitating Wal-Mart’s strategies, and reduced the advantage to the company over time (Tilly 2006:198). In contrast, Christopherson (2006) explains that Wal-Mart’s unsuccessful entry into Germany (with its decision to disinvest) related to the very different character of market governance there than in the US – the power of German manufacturing, the system of occupational skills and training, the local regulatory context favouring existing firms—and ultimately to the disjuncture of Wal-Mart’s firm culture. Thus, analysis of the existing conditions of the retailing, food manufacturing and distributive systems is critical to understanding the effect that Wal-Mart will have on an economy.
Durand and Wrigley (2009) usefully consolidate much of this literature into three key issues which explain the success of the firm within host economies: the timing and mode of entry into the 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