Online Annual Report 2009
Now 13 stores in SA
Operating in SA, Zimbabwe
Food/liquor/general merchandise
Liquor and general merchandise LSM 6 10 and food LSM 2 4





Living Standards Measure (LSM)
The South African Advertising Research Foundation (SAARF) Living Standards Measure (LSM) has become the most widely used segmentation tool in South Africa. It is a means of segmenting the South African market that cuts across race, gender, age or any other variable used to categorise people. Instead, it groups people according to their living standards.












Sales exceed R11.1 billion from only 13 stores
Good profit performance despite difficult trading environment
Automated replenishment system extracts efficiencies
Two new store sites secured







Group contribution




Store progress

Opening balance 13
No store movement during the current year -
Total stores in 2009 13
Excluding two Zimbabwean stores, deconsolidated since 2007




























































Masswarehouse directorate

Grant Pattison

Kevin Vyvyan-Day
Chief Executive

Bruce Cayzer
Food Director

Guy Hayward
Non-executive Director

Garry Hendry
Liquor Director

Doug Jones
Financial Director

Derick Kalan
General Merchandise Director

Gert Lourens
Operations Director

Thuli Mpshe
Human Resources Director

Chris Nezar
Marketing Director

Pieter Schoeman
IT Director

Masswarehouse divisional review

Masswarehouse was the founding entity of Massmart and currently operates 13 warehouse stores, branded Makro. These are situated in all the large metropolitan centres of South Africa selling food, liquor and general merchandise to retail and wholesale customers.

Our two stores in Bulawayo and Harare in Zimbabwe have been excluded from our financial figures since 2007.

The Makro formula

The Makro retail model is unusual in that it sells general merchandise to retail customers, while most of its food and liquor is sold to wholesale customers. This blend gives the brand a robustness that enables it to trade comfortably through most economic cycles. The big-box warehouse club format with our no-frills approach keeps costs down and provides the platform for our high-volume, low-margin sales offering of quality branded merchandise. Our customer database generated by Makro stores cards used at the point of purchase helps us to keep track of the spending patterns of our 1.5 million active members and we communicate regularly with them through targeted promotional material.

Our value proposition

Makro’s offerings are tailor-made to fit a variety of customer needs across all our merchandising categories.

Our food offering caters to wholesale shoppers ranging from informal traders and grocery store owners to hoteliers, restaurants, offices and schools. Wholesalers account for up to 80% of Makro’s food sales and mostly shop during the week for the convenience of our wide range of good value, quality consumables. At weekends our focus shifts to promoting good buys for retail food and grocery shoppers, who can achieve substantial savings on their monthly household basket compared to other mass retail outlets.

Our liquor offering also caters to both the retailer and wholesale customer. Our liquor outlets, immediately adjacent to our main outlet, continue to increase their range of premium brands, especially in wine and whiskey. These products are sold at a low margin to maintain and grow our share of the market. At the same time we have maintained a strong presence of beer and budget brands for liquor wholesalers looking for good value.

Our operating environment

Food price volatility in the first half of the financial year worked in our favour. Food inflation contributed to overall sales growth, and in the midst of severe shortages of certain food products, we were able to attract customers by stocking products in sufficient quantity that our competitors could not. In this inflationary environment, consumers bought goods in anticipation of price increases, which supported volumes.

The second half of the year however, was characterised by deflationary pressures in food and a resultant oversupply as retailers and wholesalers began to destock. It became imperative to move stock as quickly as possible and we worked hard to provide the right deals for all our customers in order to do this. At a wholesale level, the market became more competitive with aggressive pricing compounded by a lack of demand. Just as consumer confidence began to improve on the back of interest rate cuts, the global slowdown began to impact the local market. This affected our sale of ‘big ticket’ general merchandise items particularly in the fourth quarter. We used a number of strategies to ensure our products remain affordable to our customers. By downscaling the features of certain durable products, or removing some of the 'bells and whistles', we were able to bring down the cost of manufacture and therefore the selling price. We also continued to invest in the development of our private label products. These offer value to our customers, who are assured of stringent quality control and best supplier practices. Our range of branded sports apparel and equipment was expanded to eight stores.

Liquor sales continued to perform well, with 19% growth over the year. Not all customers who shop in our main Makro stores also shop in our adjacent liquor outlets, which provides excellent cross-selling opportunities. Three Makro stores now have a wine offering in the grocery section of the main store and we are looking to expand this model.

Financial performance

To make comparisons with the prior financial year meaningful, all current year income statement figures in this review are compared to the equivalent figure for the prior year’s 52-week period.

      2009 2008 2008 2007
      52 week 52 week 53 week 52 week
Sales Rm   11,102.4 9,912.0 10,103.8 8,640.1
Trading profit before interest 3 Rm   713.0 616.0 640.3 471.4
Trading profit before interest as % sales %   6.4 6.2 6.3 5.5
Operating profit before interest Rm   718.6 615.9 640.2 466.7
Operating profit before interest as % sales %   6.5 6.2 6.3 5.4
Net finance costs Rm   89.6 88.1 90.6 58.7
Trading profit before taxation 3 Rm   802.6 704.1 730.9 530.1
Trading profit before taxation as % sales %   7.2 7.1 7.2 6.1
Operating profit before taxation Rm   808.2 704.0 730.8 525.4
Operating profit before taxation as % sales %   7.3 7.1 7.2 6.1
Inventories Rm   1,159.2   1,043.6 807.2
Inventory days days   45   45 40
Net capital expenditure 1 Rm   102.3   153.7 49.8
Cash flow from operating activities Rm   145.5   286.3 375.8
Number of stores     13 13   12
Trading area m2   117,859 117,859   107,575
Average trading area per store m2   9,066 9,066   8,965
Number of employees     2,805 2,770   2,570
Sales per store R000   854,031 762,462   720,010
Sales per m2 R000   94 84   80
Sales per employee R000   3,958 3,578   3,362
Net capital expenditure is defined as capital expenditure less disposal proceeds.
2   The ratios have been calculated using year-end balance sheet figures.
3 Trading profit is earnings before asset impairments, BEE transaction IFRS 2 charges and foreign exchange movements.
4  The above results exclude Makro Zimbabwe. Details can be found in note 8.

The Division reported total sales of R11.1 billion, representing growth of 12.0%, while sales inflation was estimated at 13.4%. Comparable sales growth was 10.0%.

Trading profit before interest and taxation of R713.0 million was 15.7% higher than the prior year and was higher than sales growth on the back of another good year of expense control and holding gross margins. Working capital management has been a strength of Makro and this year was no exception. Despite lower commercial interest rates, trading profit before taxation of R802.6 million was 14.0% higher than the prior year. The Division’s resultant return on sales (trading profit before tax/sales) of 7.2% was very satisfactory given the difficult South African consumer environment and is an improvement on the 2008 figure of 7.1%.

Capital expenditure of R102.6 million was lower than the prior year’s R153.9 million and was spent mainly on a major store refurbishment and IT.

Trading profit before tax return on sales





7.0% 5.0%         

Trading profit before tax return on sales has been calculated using profit before tax adjusted for asset impairments, the BEE IFRS 2 charge and net foreign exchange movements.

We anticipate that Makro will open at least five new stores, including a relocation, in the next four years. The significant new store pre-opening costs as well as the relatively long period a new store takes to trade optimally, means that we will hold the target trading profit margin at 7.0%.

Investing in IT

Our Makro card continues to provide us with unique customer information which we are able to use to understand the needs of our customers. Over the past year we focused on delivering tailored SMS campaigns and electronic communication to our customers, and structuring individual deals for groups of customers, based on the data we received by tracking their purchases. As part of our customer retention programme we send customers birthday SMSs and electronic vouchers. A planned upgrade of our Customer Retention Management system over the next year will allow us to track and manage our campaigns even more accurately.

Improving efficiencies

Our SAP auto-replenishment and forecasting module has yielded major efficiency improvements. This year the system coordinated 30% of our food sales and 16% of our general merchandise sales by value. By the end of the calendar year, we expect 45% of our food and 25% of our general merchandise to be automatically replenished.

Although stock levels remained steady over the past year, various initiatives are under way to ensure that we make better use of the bulk storage space in our stores known as 'above lights'. An IT-based space management initiative will help us to achieve this.

Makro Strubensvalley

Investing in our human resources

We continued to invest significantly in our human capital, providing training at various levels across a range of staff. Eight African, Coloured and Indian candidates successfully completed the Merchant programme qualifying them as buyers. We also participated in offering learnerships to external learners in our various stores in conjunction with the Wholesale and Retail SETA. With 19 learners on the programme, we will be recruiting successful candidates into permanent positions across our stores. In addition, six graduates were recruited into the business and were provided with intensive in-store training exposure to roles at head office. Upon successful completion of the programme, they will be appointed to management positions within the company. We currently have 65 employees on the Massmart Retail Management Programme, which provides in-depth training to managers and future leaders of our business. Makro also provided Adult Basic Education and Training (ABET) literacy and numeracy training to 99 employees during the past year.

Ongoing staff training around safe stacking and racking procedures was undertaken to ensure the highest levels of in-store safety.

During the year there was a tragic incident in which a building contractor was killed while knocking down a wall during the refurbishment of our Germiston store. Makro continues to monitor our subcontractors and ensure that they abide by the necessary health and safety regulations.

Investing in Africa

Our operations in Zimbabwe remain deconsolidated from our financial results. Over the past few years we have distanced ourselves from the day-to-day running of the stores in Harare and Bulawayo. Rampant inflation meant it was impossible to keep track of performance. The recent move onto a US Dollar-based trading system has provided some stability and we are able to at least measure sales and costs more accurately. Both stores are just profitable and total sales remain immaterial to Makro. We continue to look for attractive investment opportunities, including opening new Makro stores on the rest of the continent, though first and foremost we remain focused on growth in the South African market.

Investing in our communities

As part of our drive to encourage customers to be environmentally aware, we have introduced the Remarkable range of stationery, made entirely from recycled materials such as car tyres and plastic. We anticipate that this will be attractive to both schools and corporates. All our Gauteng stores now have recycling containers to enable customers to dispose of their electronic waste and, together with our computer partner Fujitsu Siemens, we ensure that hundreds of kilograms of electronic waste is reused, recycled or destroyed instead of ending up in the country’s landfills.

Makro Strubensvalley

Makro continues to sponsor 500 meals a day through the African Children’s feeding scheme which reaches the children in the poor communities in Soweto. We also provide food to the Centurus Trust feeding scheme which serves 400 meals a day to children in the farm schools around Hartebeestpoort Dam. During the past year we donated seven container kitchens to poor communities in KwaZulu-Natal and Port Elizabeth. The kitchens serve meals to about 5,000 learners a day.

In keeping with sponsoring initiatives that focus on the education of South African youth, Makro contributed gift vouchers for the purchase of stationery, sport equipment and educational aids for schools nominated by the Excellence in Education Awards, an initiative which recognises exceptional improvement in a school’s Matric results. This impacted 29,000 school children in 33 schools across three provinces.

Makro partners with the Starfish Foundation and Thandanani Community-based Organisation that focus on orphaned and vulnerable children affected by HIV/Aids. Our contribution of funds impacts 500 families.

Risks and rewards

As consumer spending continues to slow, our response is to continue offering customers exceptional value. Our customer retention programme helps us to identify the items most needed by our customers and to price them accordingly. Makro customers are likely to achieve saving of 7%–10% from our stores compared to other food retailers on a basket of goods representing typical month-end purchases. By introducing small changes, such as displaying single units of items as well as bulk packaging, we continue to attract new retail clientele. In addition, we’ve continued to commoditise general merchandise brands and bring aspirational brands to South African shoppers.

Future outlook

Makro continues to outperform its competitors in a difficult retail environment. While we will always be on the lookout for more new sites for expansion across the country, with consumer spending likely to remain muted until at least the beginning of 2010, we will continue to focus on what we do best: growing volumes off a low-cost structure.