Massmart Annual Report 2008

Business model

Massmart Group

Massmart has evolved a business model that empowers its Divisions to take trading decisions suited to their individual operating needs but within a strategic operating and financial framework set by the Group.

This has several advantages. The framework guarantees consistent compliance with the best governance standards and national legislative requirements. It commits each Division to implementing Massmart’s core strategy of being a high-volume, low-margin distributor of quality branded consumer goods for cash, and ensures expansion plans add net value to the Group rather than cannibalising existing operations. At the same time, Divisions can extract maximum value from being part of a larger Group with greater access to goods and services or negotiating better terms and rebates with suppliers and service providers. The Divisions are differentiated as retail or wholesale formats that address different customer and market profiles.

The model is put into operation through four structural entities: Massmart Holdings, the shareholder of the operating Divisions that consolidates the Group’s financial, treasury, tax and company secretarial functions and is headed by the Group CEO; Channel, where Divisions can share best practice and develop mutually beneficial collaborative efforts; Shared Services, which handles those activities identified by Channel that are more cost-effective to share across Divisions; and the four operating Divisions themselves.

Decentralised decision-making is given effect through a Group Executive Committee reporting to the Group CEO. The Committee’s members comprise the CEOs of Massmart’s four operating divisions and a Group Executive from each of Massmart Holdings, Channel and Shared Services. Massmart Holdings Executives are also represented on each of the four Divisional Boards as non-executive Directors.

Massmart Holdings

Massmart Holdings performs the Group management and advisory role and defines the strategic and broad operating principles that guide the Group’s activities. Its functions include budget approval and capital allocation, store site location, executive appointments, development and retention, corporate affairs, human capital and internal audit. A business intelligence unit collates and analyses divisional data to inform Group strategy and decision-making.

Massmart Channel

Massmart Channel consists of formal trading and functional forums where ideas on collaboration across Divisions are shared. Trading forums cover Food and Liquor, General Merchandise, and Cellular. Functional forums include Technology, Information and Process (TIP), Operations and Human Resources. Forums are headed by divisional CEOs, who are all members of the Group Executive Committee. Directors and Executives from the Divisions attend forums in their specific areas of competence. Once consensus is reached on a collaborative proposal, the Executive Committee approves whether it should be rolled out across the Group.

Massmart Shared Services

Massmart Shared Services implements collaborative agreements reached by Channel. The most important are Group supplier negotiations for all products sold across the Group. Shared Services also handles the Group’s Payroll functions, the Shipping and associated treasury functions for direct imports, and managing private or exclusive brands shared across Massmart’s trading divisions.

Massmart Divisions

Massmart’s Divisions comprise Massdiscounters, Masswarehouse, Massbuild and Masscash. Each has a dedicated management team focusing on a particular retail or wholesale format, merchandise proposition and customer base, and is empowered to take trading decisions within a strategic framework and governance structure defined by the Group.

Massmart Holdings