Walmart’s latest private-label push in SA is set to shake up the country’s retail sector, but its long-term success remains uncertain in a market dominated by strong local players.
This is according to Muneer Ahmed, portfolio manager and analyst at Aeon Investment Management.
Through its local subsidiary, Massmart, the global retailer is set to introduce exclusive Walmart private-label items and international products across its Game, Makro and Builders stores.
The expansion includes private-label toys, snacks, baby care products and bulk American breakfast cereals.
However, according to Ahmed, Walmart faces an uphill battle in growing its grocery presence. He said while the global retail powerhouse has the financial muscle to compete aggressively, Massmart has struggled for years to make inroads in the grocery sector.
“The Massmart business, which is owned by Walmart, has really struggled over many years to find any success in the local market. Builders Warehouse has been the only real success story. For them to succeed in groceries they would first need to get customers back in stores. This will be a big challenge considering the strength of Shoprite and Boxer,” he said.
With SA consumers becoming price-sensitive amid economic challenges, Walmart’s competitive pricing could put pressure on local retailers. However, Ahmed believes the retailer’s current grocery footprint is too small to trigger an industry-wide price war — at least for now.
“A price war is possible to some degree. But Walmart does not now have the store footprint in groceries to have a serious impact. This may change if they choose to invest in SA by rapidly expanding store count.”
Despite Walmart’s global experience in private-label retailing, SA presents unique challenges. Local retailers have deep-rooted brand loyalty and an in-depth understanding of their customers. Ahmed remains sceptical about Walmart’s ability to gain long-term traction.
“It might be short lived. Local retailers have a good understanding of the SA consumer. As mentioned earlier, Massmart’s previous failures in SA gives me little confidence that this time will be different,” Ahmed said.
I think the stronger local retailers like Shoprite and Boxer will retain their market share. It is perhaps more of a concern for the struggling local retailers like Pick n Pay and Spar.
Ahmed said from a logistics perspective, Walmart’s private-label expansion is unlikely to face supply chain or import regulation challenges that its competitors do not already navigate. The bigger question, however, is how local retailers will respond.
Shoprite and Boxer, the country’s leading low-cost grocery chains, are expected to defend their market share aggressively, while struggling retailers like Pick n Pay and Spar could feel the pressure.
“I think the stronger local retailers like Shoprite and Boxer will retain their market share. It is perhaps more of a concern for the struggling local retailers like Pick n Pay and Spar.”
Shoprite added a hefty R11-billion to annual sales from in-house brands over the past three years, creating a challenge for established branded consumer goods makers such as Tiger Brands and AVI.
In the 2024 annual report, Shoprite said its private label sales rose 12.8% this year, contributing 21.3% to its R200bn-plus supermarket sales, excluding liquor. Its private label portfolio evolved from 184 brands valued at R21bn to 169 brands worth R32.3bn three years ago.
On the other hand, Pick n Pay is struggling to revive its former glory with group CEO Sean Summers revealing last year that Pick n Pay’s private label participation hovers at 11% to 12%, which is far below its potential. He said the segment is facing challenges in sorting out their product range and improving packaging.
SA’s private label market has seen explosive growth over the years, with sales set to exceed R100bn within the next 6-12 months, according to consumer intelligence group NIQ.
Essentials such as bread, cereals and eggs are driving this trend, as economic pressures force many shoppers to prioritise value-based options over traditional branded goods.
Spar’s private label products grew by 7% in its SA operations, while they contributed more than 21% in the group’s Swiss business.
However, the retailer has warned that the rapid growth of private label products is creating new opportunities but also challenges adding that increased competition in this booming market could pressure margins and lead to potential oversupply.
The retailer said that while private labels were embraced by cost-conscious consumers, there is a risk that these products may fall short of evolving consumer expectations for quality and lifestyle alignment, prompting retailers to strike a balance between affordability, innovation and premium positioning to meet diverse shopper needs.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.