Massmart's foodsales rake in R9bn

Massmart - owner of Makro, Game and Dion Wired - is feeling Walmart's love.

After its first full year as a subsidiary of the US retail giant, Massmart's food business is looking much stronger.

Though its food turnover accounts for only R9-billion of total sales of R61.21-billion, food is still strategically important because it gives clues as to how much of Walmart's expertise is entering the South African market.

Massmart CEO Grant Pattison said Massmart has over the past year become "competent" in fresh food sales, pointing to the establishment of its Foodco division in Game stores and Cambridge outlets. It is now also looking at baking and food preparation. To achieve this, it is working with Walmart and UK subsidiary Asda.

Pattison regards the R9-billion mark as critical mass.

Food retailing is likely to be a big battleground between Massmart and rival Shoprite, though the former has a long way to go.

But it seems to be arming itself for the duel.

"We're in a heavy investment cycle," said Pattison, referring to the three distribution centres it has already built.

The group has converted from direct store deliveries to a full supply chain - a transition that Pattison claims has "killed" many other retailers.

He described supply-chain costs as having an "invisible competitive effect". This is where its US parent company is a world leader.

"The results reflect the group's continued investment for growth across all divisions, but specifically food retailing. This has driven sales and market-share growth while suppressing margin growth in the short term," Pattison said.

A record R1.7-billion was invested in stores and infrastructure during the year. The group has opened 25 new stores and acquired another 15. It sees itself expanding rapidly and creating more than 3000 jobs a year. But it admitted it will be constrained by the proposed changes to labour legislation.

In the year to the end of June:

Total sales increased by 15.6% to R61.21-billion;

Gross profit of 18.38% is higher than the previous year's 18.26%;

Operating profit is up 3.7% to R2.14-billion before transaction costs; and

Headline earnings before transaction costs increased by 8.9% to R1.36-billion.