Newsmaker: Grant Pattison: Ceo of Massmart

It's taken 10 years of preparation for Massmart to pave the way for its deal with Walmart, writes Chris Barron

Walmart's $2.3-billion (R16.5-billion) offer for 51% of Massmart was the culmination of 10 years of thinking and planning by the South African retailer.

"We decided 10 years ago that the best way for us to participate in globalisation would be to be bought by a global player," says Massmart's 39-year-old CEO, Grant Pattison. "And so we decided to run the company in such a way that when one of them decided to come, we'd be well positioned to be bought by them."

He had "always thought it strange" that only the retail sector in SA had remained without a global partner.

Four or five years ago, he thought it was about to happen. "SA was in really good shape then, and we started seeing the signs."

Global emerging-market funds started to become serious shareholders in locally listed companies. Then private equity funds started getting involved in the retail sector.

"We thought the next step would be the arrival of a global retailer, and that's when the global crisis began to hit."

When the "first noises" about Walmart's interest in SA started three years ago, "it made me sit back and say, 'What would I do if Walmart came and bought Shoprite or Pick n Pay?' That seemed the most obvious thing that would happen.

"I thought, 'What will we do? They're going to take a food retailer and strengthen its general merchandise business.'"

Massmart was, and is, the local leader in general merchandise, and the question was, "How are we going to defend against a Walmart entry with one of our competitors?"

He decided Massmart must enter the food retail space big time and quickly.

But what if the world's biggest retailer didn't come?

"I decided we'd probably have to do this anyway."

So, three years ago, he decided to act.

What gave Massmart the edge over, say, Shoprite, which has a much greater and more established presence in Africa?

"I don't know," says Pattison with surprising frankness. "Acquisitions are funny things."

Any one of Shoprite, Pick n Pay or Massmart would have been good acquisitions for Walmart, he thinks. None of them would have been "a strategically better move".

Analysts think Shoprite would have been the best bet, seeing Walmart's purpose is to capture sales in Africa.

"Well, these are complicated things," he responds. "Do you buy the company that is most like what you want or do you buy the one that has the potential to be turned into the one you want?"

Given the huge dominance of Shoprite, Pick n Pay, Spar and Woolworths in the food retail sector, isn't he being somewhat over-ambitious in thinking he can turn Massmart into what Walmart wants?

He laughs. "Certainly, this is a brave move. The market is well serviced by a supermarket format.

"I looked at this three years ago and said there's no room for another supermarket. We decided we'd have to do it with a different format."

Massmart has chosen to implement the super-centre format used by Walmart.

This has general merchandise and food under one roof, but is smaller than a hypermarket and focuses more on general merchandise.

While Massmart will have access to Walmart's global buying power in hard goods, the retail giant's international procurement clout won't help it on the food side.

"But it is the biggest food retailer in the world, so it does have skills on the buying side, how to buy fresh produce, that we don't have," says Pattison.

Walmart's "skills on the buying side" are well known, of course, and as much feared by suppliers as admired by the likes of Pattison.

"Look, a lot has been written about Walmart. I can't tell you how much of it is true. But, from my experience of them, talking to the guys, they don't seem to be bullies."

He would say that, of course. Those who have been at the sharp end of its fearsome buying tactics tell a different story.

The question is: are these tactics going to be good or bad for SA's struggling manufacturers?

Pattison says Walmart's entry will be a blessing to local suppliers unable to get into the current distribution network controlled by SA's big retailers.

"Also, a lot of competition problems have emerged in our food producers' industry, and consumers should be asking the question, 'Don't we need more competition?'

"Walmart really negotiates great prices for consumers and is going to bring down the cost of producing food."

Walmart has a reputation as a union-basher or union-denier. Might this spell trouble for Massmart on the labour front?

"At the moment, there's only one side to the story, which is fuelled by international labour organisations picking out the worst of Walmart experiences around the world.

"I've spoken to Walmart about this, and I've got its assurances."

He makes the point that, in SA, the rights of workers are so well protected in law that it would be impossible not to recognise them.

On the integration front, many local managers might find the spectre of a bunch of Americans throwing their weight around a bit disturbing.

"Massmart will lead the integration. We are very clear about what we would like to get out of the Walmart system, and we will drive that."

He concedes "the potential exists" for him to be second-guessed or overruled, but "if it happens, it will be completely contrary to the agreement we have".

Pattison was born in Bulawayo, Zimbabwe, of SA parents and got his A-levels there before going to the University of Cape Town on an Anglo American scholarship to study electrical engineering.

He joined Massmart in 1998.

If the deal is approved, each shareholder will sell 51% of their shares to Walmart.

Pattison, who has 1.9million shares in options, will pocket "around R50 or R60-million after tax".

Which may or may not be why he has spent the past 10 years dreaming about that knock on the door.