Tuesday, May 31, 2011

Chilean experience shows how Walmart will benefit SA

I AM not an economist, I am a retailer. But I would like to share with you some macroeconomic numbers that I think are rather interesting. SA’s per capita gross domestic product (GDP) today is about the same as that of Chile, my home country, in 2002. Between 2002 and last year, however, Chile increased its per capita GDP by more than 40% (I have seen one reputable estimate that puts this figure at almost 50%, or $15500 today), while at the same time the retail industry more than doubled, creating many hundreds of thousands of new jobs.

I am completely confident that SA will follow the same path.

While the world economy went into a meltdown, Chile has created 750000 new jobs since 2009; a huge achievement in a country of 16-million people.

My own sector has grown from being a $5bn business nine years ago to one that is worth $13bn today. How have we achieved this? The retail boom in Chile can, I believe, be largely attributed to the increase in per- capita GDP. Of course, a rise in this important economic indicator doesn’t directly translate into more money in people’s pockets but it goes a long way — I would suggest most of the way — towards explaining retail’s recent success in Chile.

I mention these statistics not to boast about my country’s achievements but to offer South Africans some very real encouragement. There are many parallels between our nations apart from similar GDP figures. Until not that long ago we both had closed economies and authoritarian political regimes. Then we both achieved democracy — in the case of Chile in the late 1980s — and we both began to open up our economies. Tariff barriers were scaled down or scrapped. Our economies were opened up to the world. Inevitably, this meant that some companies and even whole sectors failed at the same time that others flourished but, overall, the effect, certainly in the case of Chile, was overwhelmingly positive. I tried to paint this picture recently when I testified before SA’s Competition Tribunal. What I said was that competition and being integrated into the world economy, while sometimes painful, had benefited my country enormously.

I am the CE of Walmart Chile. As such, I was telling the t ribunal about my experiences of working with the world’s biggest retailer in Chile. I told them about how Walmart had sought to enter Chile because it had a stable economy and a stable political system and because it was an emerging market. These are pretty much the same considerations with which Walmart approached its acquisition of SA’s Massmart .

I made the point in my written submission that many in Chile had been sc eptical about Walmart coming to our country — but that any fears there may have been mostly allayed.

Counsel for those wanting to attach conditions to the takeover interrogated me quite vigorously. I rather enjoyed the experience and can only hope that I gave as honest and balanced a portrayal of the situation — as I have experienced it — as possible.

Distribucion y Servicio ( D&S) is Chile’s largest food retailer. It began life as a family- owned operation led by Manuel Ibanez Ojeda in 1957 with one supermarket, called Almac. The sons expanded the business and remain involved to this day.

The modern D&S, which Walmart acquired in 2009, operates under several formats, including hypermarkets, supermarkets and convenience stores called Econo, of which we currently have about 113.

At the t ribunal, counsel wanted to know what effect Walmart’s ownership had on our suppliers. The exact number of suppliers we have added post-Walmart was meant to have been confidential, but it emerged on the record during the hearings and it is now on the public record, so I may as well repeat it here. Since Walmart took over (and bear in mind that this was barely two years ago), D&S has added 487 new suppliers. In real terms, we are talking about $25m worth of goods, almost all of which went to very small, mostly fresh-produce, producers. Many of these have enrolled in D&S’s small agriculture development project, which we launched last year and aims to help smaller farmers increase their sales and business skills. I might also mention that we are proud of being one of few companies that pays small and medium suppliers in 30 days, as opposed to the industry norm of 60 days.

Walmart’s entry into Chile has resulted in significant increases in sales and profitability for its Chilean suppliers. Since 2009, D&S has worked with local, regional and international suppliers to institute a formal plan aimed at helping suppliers become more efficient, to better manage their product ranges and to develop new products.

This initiative, called the joint business plan, has resulted in lower operating costs, better quality and increased sales for D&S, while also benefit ing suppliers.

The plan is not about D&S telling its suppliers what to do, but rather about making both D&S and the supplier responsible for the supply relationship.

A report by independent economists, which was shared with the t ribunal, made the point that by last year those suppliers taking part in the plan had already seen a significant increase in both sales and profitability.

The amount of $25m I mentioned is a fairly small percentage of overall sourcing in Chile, but consider this: in SA, Massmart buys 95% of its goods from local suppliers. In Chile the figure is 93,7%, two years after the buyout. When Walmart arrived in Chile, it already had operations in other countries in South America. In Africa this is not the case. Imagine, then, how much greater is the scope for suppliers to grow, into Africa, because of a Walmart-powered Massmart.

The Walmart takeover story, however, is not just about the local market. Since Walmart acquired a controlling interest in D&S, Walmart now accounts for exports from Chile worth $250m . Before the takeover the figure was $100m . Procurement is a two-way street, as Chile has experienced to its benefit.

I didn’t quite succeed, in my interrogation before the t ribunal, in getting across actual employment figures in Chile pre- and post- Walmart. Apart from replacing the chief financial officer, Walmart did not make any employees redundant after acquiring D&S. The numbers today are these: we now employ 39000 people, 55% of whom are women and 34% of whom work part-time. In just two years, we have added 3000 jobs, an 8% increase. Again, not a bad achievement.

The ratios of female and part-time employees have remained largely the same since Walmart took over and the company has sought to improve working conditions.

Of course, you would expect me to support Walmart’s takeover of Massmart. I cannot for a moment suggest what is best for SA. All I can say is that, based on my experience in an emerging market on a continent very different yet not entirely dissimilar to yours, we have found that Walmart is, to borrow from the company’s terminology, helping us all to live better lives.

• Cambiaso is the CEO of Walmart’s subsidiary in Chile. He testified at the Competition Tribunal on behalf of Massmart and Walmart.

Source: BusinessDay