Will Walmart bring your prices down

2012-03-10 16:27

The National Consumer Forum says the confirmation of the Walmart-Massmart merger is likely to bring down South African retail prices.

On Friday Competition Appeal Court Judge Dennis Davis dismissed the application by the ministers of economic development, trade and industry, and agriculture, forestry and fisheries, who sought to review and set aside the Competition Tribunal’s approval of the merger.

Industry insiders said the court’s confirmation that the merger could go ahead might spark a price war – one which will ultimately benefit consumers.

The country’s other big retail chains, Pick n Pay and Shoprite, were also likely to benefit from lower prices negotiated by Walmart-Massmart with producers, resulting in them being able to drop prices to compete with the new player, insiders told City Press.

National Consumer Forum chairperson Thami Bolani said while it was premature to view the deal’s approval as a victory for the poor, it could have positive benefits in bringing down prices.

Davis partially upheld an appeal by the SA Commercial, Catering and Allied Workers Union (Saccawu) that 503 Massmart workers retrenched ahead of the merger be reinstated.

He also ordered that Saccawu, the three ministers and the company commission a study on how best to have small and medium South African suppliers introduced into Walmart’s global operation.

Pick n Pay’s executive chairperson Gareth Ackerman refused to comment on the judgment.

“We don’t comment on our competitors’ strategies. However, what we can say is that we are confident about our long-term success in the South African retail market as we move the company strategically to international best practices.”

However, an industry insider said the other big chains were set to benefit from Walmart-Massmart pressure on suppliers, who were in a better position to cut prices than existing retailers.

“The South African retail market is very competitive and profits are very slim, between 2% and 3%,” the insider said.

“There is a hype that prices will drop because of Walmart but the reality is that prices will only come down through pressure on producers, whose margins are between 8% and 20% and who have some space to move,’’ the insider said.

“When Walmart goes to big South African producers the other groups will do the same, as they also have serious buying power. If Walmart, for example, uses Chinese suppliers, the local producers wanting to compete will have to drop their prices and the consumer, in the long term, will win.’’

The benefit to consumers in terms of food prices may, however, take longer as general goods – and not food – are the major commodities currently available at Walmart-Massmart stores.

Stores within the Massmart group include Game, Dion Wired, Makro, Builders Warehouse and Masscash.

Bolani said having another retail chain increased competition “which is always good for the consumer”.

He added that the study on how to include South African suppliers was a very positive move which could stimulate innovation and create new jobs.

“We have already been approached by a range of black businesses wanting to do business with Walmart,” he said.

“If products are sourced locally, this will have a very positive effect in terms of job creation and stimulating economic activity as well,’’ he said.

Walmart-Massmart spokesperson Brian Leroni said the merged firm welcomed the decision and wanted to work with labour and the government.

“The process has been rigorous and long in duration. We think that we know and understand each other’s expectations,” Leroni said.

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