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Massmart: Does the product sell, that is the question

The Competition Tribunal’s hearings into United States retailer Walmart’s planned acquisition of Massmart started in Pretoria on Monday with Massmart CEO Grant Pattison taking the stand.

“To my mind, Massmart stands to benefit most in the food retail sector into which it has significant expansion aspirations,” Pattison said in his witness statement prepared for the hearing.

Pattison said the deal would allow Massmart — the fifth largest participant in this sector but substantially behind the other four retailers — to “draw on the skills, systems and processes already developed, tried and tested by Walmart”.

The intervening parties — the departments of economic development, trade and industry, and agriculture, fisheries and forestry, the SA Commercial, Catering and Allied Workers’ Union (Saccawu), the SA Clothing and Textile Workers’ Union (Sactwu), and the SMME Forum — have raised objections to the proposed transaction.

One of the arguments against the deal is that it would strangle local suppliers if Walmart were to import cheaper Chinese goods.

Does the product sell?
Pattison said this would not be the case, as the “most important factor is therefore whether the product sells, and not from where that product is sourced”.

“Ultimately, Massmart’s procurement philosophy is driven by consumer choice. Massmart procures products from suppliers because consumers buy those products from Massmart,” his statement read.

“Other than for the purposes of diversity of supply and BBBEE [broad-based black economic empowerment] considerations, it is irrelevant to Massmart whether a particular product is locally manufactured, locally assembled with all or some foreign components or fully imported.”

He said although Massmart attempted to procure its products as cheaply as possible, its business was “premised on the assumption that all of Massmart’s major competitors are able to procure goods from suppliers at substantially similar prices”.

“The differentiating factor, therefore [over and above servicing customers better], is the ability to move the product from the factory floor to the store shelf more efficiently than its competitors, thereby obtaining a competitive advantage,” he said.

“As the acquisition of Massmart by Walmart will not have a material impact on these fundamental economic determinants, the basic procurement patterns currently seen within the Massmart business are unlikely to be changed significantly by the proposed transaction.

Local procurement pursued
“Simply put, local procurement is being, and will continue to be, pursued by Massmart and Walmart because it makes commercial sense to do so,” he said.

The hearings are set down for May 9 to 13 and May 16 has been reserved for legal argument.

On Monday, Pattison and Walmart executive vice-president Andy Bond are scheduled as witnesses, according to the Competition Tribunal’s website.

Over the course of Monday to Wednesday, Saccawu and Sactwu will give evidence.

The Competition Commission has recommended that the transaction be approved with no conditions.

In January, shareholders voted to accept Walmart’s bid to acquire 51% of Massmart for R148 a share in a deal worth about R17-billion.

The Massmart group includes Game, Dion Wired, Makro, Builders Warehouse and Masscash.

Walmart operates around the world, including Canada, Brazil, China, Chile, Japan and Mexico. It wants to buy the stake in Massmart to establish a presence in emerging African markets. – Sapa

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Gillian Jones
Guest Author

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