
THIS ISSUE: 23 Sep - 30 Sep
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Massmart Oh by the way
If successful, the Massmart/Walmart deal, which we are pleased to call “Wakro”, after the tradition of “TomKat” and “Brangelina”, will be signed and sealed in a brisk five months or perhaps a touch more. First off for Wakro, which is currently in the endearingly awkward “nonbinding offer” stage, is a two-to-three month due diligence, a process according to one insider of “counting stores and tins” to confirm publicly available information. For Walmart, a big drawcard is Massmart’s expanding footprint and sound strategy in Africa, with an expected surge in middle-income African households from 59million in 2010 to 128million by 2020. For Massmart, Walmart’s buying power and supply chain knowledge and infrastructure would have been interesting, with the Big Feller’s 4,110 stores in 14 countries outside the US. That, and a cracker of a price for shareholders – at R29.8billions for the business it is better than 10% per share on last Friday’s closing price, and the shares were already trading at a premium in anticipation of something like this happening. For suppliers, that supply chain expertise might prove a challenge initially: Walmart’s own systems are so efficient that suppliers in the US have a 30-second delivery window, with dire consequences for those who fail to make it.
Comment: So here it comes, at last. Massmart will be missed from the JSE, although the significant majority of its shareholders weren’t from these parts anyway. For more on this very important story look here.
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Pick n Pay Tie me wholesaler down, sport
In Australia, where, you might recall, there are, like, two retailers, the Consumer and Competition Commission is busily kicking up dust about Pick n Pay’s sale of Franklins to Metcash Australia. The purchase of 85 Franklins by Metcash might, the Commission feels, have a stultifying effect on the competitive environment in New South Wales. The deal is worth R1.4billion to the Big Blue, which will pretty much break even on its investment. A word on Metcash Aus – having separated from the eponymous South African parent business in a management buyout in ’05, it has gone on to glory, turning over Aus$11beelion last year. One of the problems for the Comish is that with Franklins as a big customer, Metcash will be able to up its prices or reduce its service levels to the independent retailers with which Franklins already competes.
Comment: Tricky stuff, and not great news for PnP, who could use some right now.
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Shoprite You could always fight them on the beaches....
Had you put your little all into Shoprite some ten years ago, rather than MTN, say, or Naspers, which were Finweek’s traditional picks for leading South African growth shares, you would pretty much have done twice as well. Shoprite, you may remember from their recent results, has a market value of R52billion, grew revenue 13.6% for the year and earnings 15.6%, with operating margin of 5.2%, unprecedented for a retailer. This, on top of several years of similarly handsome growth, has proved to be good for the punters. There is some speculation that Shoprite might be disappointed at not having been Walmart’s date for the Matric dance. Indeed, Mr Basson was quoted as saying, cryptically – a little sadly, perhaps? – that Shoprite “will wave to them from the beaches.”
Comment: And then head once more for the green hills of Africa, where they will rack up even more shareholder value.
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Unilever Big hair is back
Unilever has gone shopping again, this time for hair products and has come back with a veritable cornucopia of shampoos, conditioners and assorted mousses, in the form of Alberto Culver, manufacturer of VO5, Nexxus and TRESemmé hair-care products. At a luxuriantly glossy $3.7billion (R25.8bn) in cash, this represents le Grand Bleu’s most extravagant purchase in a decade, and comes hot(ish) on the heels of their acquisition of Sara Lee’s bodycare portfolio. The purchase is in line with Unilever’s strategy to double sales by getting more fiercely into home and personal-care products, after a decade spent shedding brands following the 2000 purchase of Bestfoods.
Comment: Haircare, bodycare, shopping – Unilever’s recent life resembles one of the more aspirational episodes of Sex and the City.
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Pioneer ... and that’s our final offer
The Competition Commission has appealed against a R196million fine levied by the Competition Tribunal against Pioneer Foods in the bread price fixing saga, arguing that something in the order of R350bar or even more would be more appropriate. Originally, the Commission wanted to whack Pioneer with R1.5billion, or 10% of turnover, with the thinking that this would be more of a deterrent for future carteliers, if that’s the word. The R196million slap on the wrist was unlikely to have this effect, it is felt. In the meantime, Pioneer and the Commission are in intense negotiations which may see the R350million fine being levied, and which have caused Pioneer to issue reassuring words to investors, the share price having lost 2% on the announcement of the discussions.
Comment: When will it go away? When??
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Astral Foods Home to roost
Chicken is very often a yardstick for what’s happening in the economy, and if Astral’s midterm report is anything to go by, now is no exception to that – the business has had a tough six months to September as weak consumer demand and a slow World Cup caused a decline in retail prices. This in turn has put the business into an overproduction situation, despite the fact that it did not invest as heavily in capacity over the boom as some of its competitors. Unlike Country Bird and Sovereign, Astral doesn’t supply fast-food joints. Despite this decline, the business has recently acquired three farms in the Western Cape to boost its hatching capacity in a priority region for the business.
Comment: It’s a tricky business, being a yardstick, as any of the poultry boys will tell you.
TRADE ENVIRONMENT
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Retail Sales Hello trees, hello sky, I’m an economist, la la la!
Retail sales, you will be heartened to know, grew by 7.9% year-on-year for the month of July, an uptick of 0.3% on June, according to the grizzled sages over at StatsSA, which has precisely 33.3% too many s’s in its name. This after economists had predicted they would decline to 6.9%, which is one of the joys of sheltered employment. According to sunny, after-the-fact economists (who may well be the same people) the increase was due in part to the buoying effects of 2010 and all that, but also as a result of growth in real income and the pleasing effect of low inflation on the average wallet.
Comment: We confidently predict that retail sales will continue their cautious growth for the rest of the year, and there’s not a damn you can do to stop us.
IN BRIEF
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Pick n Pay Strikingly obvious
Pick n Pay had a rough weekend, with a sharp and nasty industrial action by 27,000 SACCAWU members, who are demanding a perhaps unrealistic 12% increase in talks which have been going on for nine months and which last week became deadlocked. Earlier this month, retailers including Pick n Pay, Woolies and Shoprite differed on the establishment of a sectorial bargaining council which might see disputes such as this settled more easily. Tell that to the Competition Commission...
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Nestlé Aaaaah, nunu!
Nestlé is using lessons from emerging markets – notably that prudent punters prefer petite packaging – to help drive sales in Europe, where it has been launching some of its best-known brands – like Nescafé – in smaller pack sizes or in budget refill 35c packs. The aim is to win back consumers in cash-strapped economies like Spain and Greece, while introducing the joys of the steaming cup to lower end consumers elsewhere.

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