The “Walmart effect” in SA

1. The “Walmart effect” in SA Opportunities for and impact on agriculture Kirsty Laschinger +27 11 384 2116 Kirsty.Laschinger@sbgsecurities.com

2. Contents • Introduction • The Walmart business model • Case studies of the impact on suppliers • Supply chain wins • Potential benefits for suppliers • Focus on fresh produce • Walmart as a catalyst for sustainability • The good and bad of supplying Walmart/ Massmart • Conclusion

3. Introduction • Walmart’s offer to buy 51% of Massmart effective 20 June 2011 • Subject to legal challenge • A real game changer • Anxieties about real and perceived threats • Jobs • Retail and manufacturing • Imports • Concentration in retail sector • The deal is done, let’s find a way to make this work

4. The Walmart business model • Walmart’s every day low prices (EDLP) strategy is based on: • Low promotional sales prices, instead it focuses on low, stable prices; • Stores have some autonomy in setting prices and there can be up to a 10% price difference between stores as a result of the pricing of local competition; • Price positioning is different by format, reflecting the consumer income level at which it is targeted; • Price positioning is different in categories as the group selects some top-of-mind areas where it wants to be “unbeatable”; • It has 100 “highly visible” products priced below market; • Vigorous communication • Underpinned by everyday low cost (EDLC) strategy; • BUT there is more to Walmart than just prices

5. Impact on suppliers • Suppliers key to fulfilling the promise • The good: • A better business; • Complete transparency • Support for new businesses; • Willingness to try innovations. • The bad: • Focus on price; • The ugly: • Relentless drive for efficiency. Source: Walmart

6. Supply chain wins • The supply chain will be a focus in the quest for efficiency Source: Ecomodder.com

7. Potential benefits for suppliers • Building a local business • Supplier support; • Retail Link gives good insight; • Opportunity for innovation and value adding eg shelf-ready packaging. • International opportunities • Wine; • Fish; • ???

8. Focus on fresh produce Source: Walmart

9. Walmart as a catalyst for sustainability • Walmart’s sustainability programme: • Supplied 100% renewable energy; • Create zero waste; • Sell products that sustain people and environment

10. Walmart as a catalyst for environmental change 2005 21st century leadership speech • 2006 • Launched packaging scorecard; • Goal to sell 100m CFLs. • 2007 • Set concentrated liquid laundry detergent goal in USA; • Sold more than 137m CFLs in USA. • 2008 • Set plastic bag waste reduction goal; • Beijing sustainability summit; • Met goal to purchase only concentrated detergent in USA; • 38% fleet efficiency improvement in USA. • 2009 • Announced sustainable product index; • Seeded funding for Sustainability Consortium; • Met global goal to design and open stores that are more efficient and reduce greenhouse gases (GHGs); • Achieved 60% improvement in US fleet efficiency improvement. • 2010 • Set goal for global GHG emissions in supply chain; • Global sustainable agriculture platform launched; • Achieved 65% improvement in US fleet efficiency Source: Walmart

11. Conclusion • There are both success stories and supplier corpses; • An opportunity if engage • Local supply; • New offshore markets; • Potential champion for organic produce; • Good for innovation; • Impact • Focus on price • Competitors will squeeze back; • Even if you choose not to supply Walmart/ Massmart, you will become more efficient

12. Questions