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NEW LOOK

METRO POISED FOR MASSIVE COUNTER OFFENSIVE

After years on the slide, Metcash is transformed as Metro, and ready to seize market share. And dynamic new CEO Peter Dobson tells Colin Chinery, “We shall be concentrating on attacking every single competitor that we can go up against

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Metcash FEATURE

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ifteen years ago Metcash was the biggest food business in the country. In its heyday it operated close to 300 stores in Southern and East Africa and operations in Australia. All seemed set on an ever-rising trajectory. What followed was like the funeral march of a gravity-challenged meringue. “There were cash-flow problems related to overstocking, some stores were in impractical locations and there was an oldschool management team,” says Maryla Masojada, director of research house ‘Trade Intelligence.’ “All sorts of things went wrong,” says CEO Peter Dodson. If not quite Metcrash, it had become Metcrunch

It’s my intention to increase sales by 50%. That sounds like a long shot but I promise you, it’s very do-able Dodson is the man brought in seven months ago to move Metcash back on track in South Africa’s annual R260b food business. This is the Fast Moving Consumer Goods (FMCG) sector, and Dodson, 59, could not be moving faster. From his office in Johannesburg’s Theta district he says, “You are talking to me almost at the brink of everything turning around at Metro.” Metro is the new collective brand name for five separate brands - Metro Cash ‘n Carry, Metro Supermarket, Metro Express, Metro Hybrid and Metro Liquor. Logo unchanged, but new colours; black and vivid orange. www.southafricamag.com

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THE VALUE CHAIN FOR AFRICA Metcash will continue on its business transformation and growth trajectory through its adoption of the SAP Retail solution, says Martin Schirmer, sales director at SAP Africa. According to Schirmer “retailers were late adopters of standard software, and took the approach of developing their own software, because of the lack of a product that provided the holistic end-to-end retail type function. Metcash found itself in a similar predicament and undertook a strategic decision to adopt the SAP Retail application as the solution of choice”. The SAP for Retail solution portfolio combines SAP business suite applications with a broad set of integrated retail applications. The suite brings together the complete value chain for the customer, from initial consumer interactions at the point of sale, through the retail supply chain, to the enterprise back office in order to help retail companies operate efficiently in an increasingly competitive and challenging industry. Metcash, being a big retail brand, found value in the solution offering which provided the following ben-

efits: increased visibility which enables better decision-making, integration of all business processes and the ability to drive innovation. “The Retail industry is dynamic and is driven by consumer behaviour. It is therefore necessary to have a robust platform which enables

“Ultimately the SAP Retail application provides the necessary agility, provides a platform to drive innovation and enables the customer to have ‚one version of the truth.” Martin Schirmer, Sales Director, SAP and supports agility. Ultimately the SAP Retail application provides the necessary agility, provides a platform to drive innovation and enables the customer to have ‘one version of the truth’” says Schirmer. SAP Africa addresses the Sub-Saharan geography of 43 countries through five hubs: English speaking West Africa; East Africa; the Southern African Development Commu-


nity (SADC); Portuguese speaking Africa and French speaking Africa. SAP Africa’s client base numbers hundreds of reputed companies which range from small business to global organisations. These include retail chains Pick n Pay and Shoprite Checkers, mining company Anglo Platinum, agricultural services provider AFGRI, banking giants Standard Bank and Absa, Beverage company SAB Miller and food manufacturer Pioneer Foods.“Of the top fifty companies in South Africa at least 80% use SAP,” says Schirmer. SAP has been in the retail sector for more than ten years. “Since then we’ve made considerable progress particularly in South Africa, growing strongly into the key retailers. The

“SAP offers three key benefits: visibility into your business; agility especially in the area of dynamic processes; and ultimately driving innovation which is a prerequisite of a sustainable business.” Schirmer believes that what differentiates SAP from its competitors is its “go-to-market” approach which is based on Industry solutions with extensive industry content. “This ensures that we have the best business knowledge and related content embedded in our solutions. It’s what you do with that content that provides the organisation with its competitive advantage. In my opinion our Intellectual Property or content is generally stronger than that of our competitors which results in greater depth and breadth of our applications and that’s what people buy into” says Schirmer. In conclusion, Schirmer believes that SAP offers three key benefits: visibility into your business so you can make decisions pro-actively; agility especially in the area of dynamic processes; and ultimately driving innovation which is a prerequisite of a sustainable business.”

Massmart group was the first retail customer and more success followed through winning accounts like: Pick n Pay; Shoprite Checkers; and Metcash. Globally more than 8000 retailers rely on SAP software to remain competitive” says Schirmer.

SAP is the world’s leading provider of business software(*), offering applications and services that enable companies of all sizes and in more than 25 industries including automotive, utilities, travel and transport, consumer and package goods, discreet, banking and the public sector, become best-run businesses. With more than 97000 customers in over 120 countries, the company is listed on several exchanges, including the Frankfurt stock exchange and NYSE, under the symbol “SAP”. For more information please call +27 11 235 6045 or visit http://www.sap.co.za


Metcash FEATURE

Business Connexion Business Connexion upgrades servers and systems for Metcash Metcash Africa has invested considerably in new hardware and IT systems over the last couple of years, with Business Connexion providing the solution design and deployment support for this sizeable project. Metcash Africa is one of the larger distributors of fast-moving consumer goods (FMCG) on the continent. Having wholesale and retail operations across South Africa, Metcash also has numerous branches in four other countries in the region: Lesotho, Swaziland, Namibia, and Malawi. With some 140 plus wholesale outlets within South Africa, Metcash depends on reliable systems to have a live overview of its operations. Other wellknown chains also fall under the Metcash umbrella, which includes, Wholesale Liquor Warehouse, Stax and the network of Friendly convenience stores. It became essential for Metcash Africa to upgrade their existing systems “This project is very large, encompassing everything from desktops to the main servers at the Ormonde head office in Johannesburg,” says John

Jenkins, chief executive, Business Connexion, Services Group.

service delivery to Metcash customers and suppliers.”

“Business Connexion has focused on the server, storage and back-office aspects of this extensive upgrade.”

Expertise contributed from Business Connexion’s side facilitated further improvements.

Metcash had an existing system that was based on an in-house, customised software solution and a variety of interconnected hardware on which it was running, both at the branches and at head office. This system had reached its limit in terms of processing and storage capacity. “The upgrade was essential,” says Jenkins. “Business Connexion was able to contribute the specialised consulting so that a number of key goals were achieved in the process. We were able to upgrade to the best available P595 IBM server technology and rationalise the complex connections between branches and head office to improve performance and reliability. In addition, the use of blade servers allows complete scalability for future needs.” “Simultaneously, this made an enormous contribution to the overall Metcash operation. The new solution provides better productivity for employees, improved workflow, better management and reporting and – last but not least – improved

D-Day at Metro “I’ve just finished the financial recapitalisation of the business”, says Dodson.” We’ve gone through a complete people re-structuring of the organisation, all the planning of turning the stores around, remodelling and rebuilding them, getting the ranges right, the entire IT system right.” Seven months on and now it’s D Day. The biggest innovation is the rolling out of hybrid stores servicing both individual shoppers and trade customers. “We are going hell for leather,” says Dodson. “In the next few weeks we start up with seventeen stores on the 6

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“A critical aspect for Metcash, as for practically any business, is disaster recovery (DR),” says Jenkins. New servers were installed, thus relegating the old IBM servers to a DR function, when required. “Metcash has immediately benefited from the more powerful, reliable and stable production environment that the new hardware and software provides. The reduced burden on the company’s IT staff is a major contribution in itself.” Metcash’s investment in the new system should lead to reduced operational costs, improved productivity and service delivery – thus fulfilling the primary objectives of the project. “Looking ahead, the whole system will be integrated through VSAT connections to outlets throughout South Africa and neighbouring countries,” says Jenkins. “This is work in progress and it will enable the Metcash group to have efficient, reliable, reporting and management of their geographically diverse operations.”

conversion route. And until they are converted, in the balance of the stores we will make our offer available to the retail public as well.” Of the R260b food sector 60% is owned by the retail market and 40% by wholesale. “Being in the wholesale market Metcash had never ventured into the retail market. So effectively they had cut out 60% of the market. And of course the retailers do exactly the same, cutting out 40%. But hybrids now offer to 100% of the market…that’s their potential business.” Dodson knows the rewards. Before arriving at Metcash he managed a company that nine years ago had been a group of family


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Metcash FEATURE

businesses. “We converted all the stores into hybrids and the turnovers rose in most instances by between 200 and 1,000%, with net profitability increasing from 1% net to 5% plus.”

The New Metro look Metro currently has 140 stores in South Africa, all cash and carries with no retailing component. Ten are trade centres - large ‘box stores’ of around 14,000 sq metres Outside South Africa there are a further twelve stores in Namibia, eleven cash n carries and one large ‘box store’. In Malawi 109 stores - 250 sq metre LV type stores - with six cash n carries in Swaziland and another four in Lesotho.

In the new Metro, cash n carry will be predominantly food, typically 15,000 SKUs – Stock Keeping Units - with non-food items such as small appliances, plates and mugs. By October 1st five central distribution centres will be open. “In the model we are creating in these hybrids we shall be taking these big box stores – the Trade Centres - cut them in half and put bakeries, butcheries, hot foods and very large perishable departments into the food arena And in the half set we move out of we shall be introducing other line shops bottle stores, pharmacies, hardware stores et al. “We will be in one side of the building and another range of tenants going into the other. I will be cutting the physical space by 50%, 10

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We’ll bring food into your homes at a hell of a lot cheaper price than you’ve been paying historically

but it’s my intention to increase sales by 50%. That sounds like a long shot but I promise you, it’s very do-able.” As elsewhere in the world, recession has cost South Africa enormous job losses. “But our losses have been really really large. At the moment unemployment here is approaching 30% and it’s a torrid time for everybody. So while the market is worth R260b, its growth if anything is just about flat on last year.

Competitors beware “So the only opportunity for anybody in this industry is to take market share away from competitors. And certainly that is our intention in Metro. We shall be concentrating on attacking every single competitor that we can go up against.”


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Metcash FEATURE

Supermarket chains in South Africa operate on margins of between 22% and 24% including rebate. For cash and carry wholesale operations says Peter Dodson, it’s almost half that margin - between 13 and 14%. “And now with us entering the hybrid business, once we allow retail customers into our stores it’s going to be extremely difficult for the retailers to compete on price, given that both of us buy at almost exactly the same price. “I regard anybody that distributes and sells food as a competitor. There are four major supermarket chains; number one is Pick n Pay, the next Shoprite, the third is Spar and the fourth a group of companies called Massmart.

ideas. He will shake things up.” So what was his first impression on day one at the office? “We are minute compared with the others but what I saw was a gigantic opportunity. I’ve known the stores for many many years. In the early 1990s Metcash was the largest food business in South Africa because at that stage they owned Metro in Australia which was a very large component of the business. “Fifteen years ago they became the first food business in South Africa to go through the R50b mark. The other chains, Pick n Pay, Shoprite and Massmart went through about 18 months ago for the first time. “So this used to be an enormous business. But about five years ago they sold out of the Australian operation and underwent a management buy-out. Since then they’ve had

Metcash has gone into the doldrums in South Africa in the last ten years… very very badly “You then have another component to the distribution of food, the larger, more formal independent distributors. And these days they are mostly hybrids – very few are just wholesale or cash-and-carry. “The total of these stores is close to 20% of the market. So even though they are a substantial part of the market, the big chains in South Africa have often been quite arrogant in not recognising the collective strength of these chaps. More recently people like the Massmart Group have started recognising the achievement and risk of these independents.”

‘He will shake things up’ Masojada describes Dodson as a “highly respected retailer, not afraid to pioneer new 12

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a very hard time of it, a really really hard time. “Metcash has gone into the doldrums in South Africa in the last ten years… very very badly. We have not kept pace with the market and very little has been spent on the repairs and maintenance of our stores which are now looking incredibly old, shabby, and unfriendly towards consumers. “When I came in I could see what we needed to do urgently, not only from a store point of view and a customer point of view. But also structurally we had to change before we could go forward. Most of these things are now in place and the business has been stripped of debt. “We have just re-capitalised the entire group. I raised R300m on a rights issue to start the whole redevelopment of our entire stores programme and to convert everything


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www.ese-sa.co.za from cash-and-carry wholesale into hybrid cash-and-carry. “The banks, who had an enormous amount of debt in this business, have converted all that debt into equity because they like new story we are going to put together here. They have absolute belief in it.”

Cheaper food is on your way The secret of war, said Napoleon, is communications. And Dodson moves into his revolution with 5,500 staff in new corporate uniforms, an upbeat identity, and a monthly briefing. “People and communication are very important, and the communication of everything that we have done and are doing goes out to our staff by video every month. I have personally been around every single one of our stores in the group and I will do so twice, to every store every year.” And his message for the South African shopper? “We’ll bring food into your homes at a hell of a lot cheaper price than you’ve been paying historically.” END

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METCASH FEATURE