RENEW Strategies

Walmart Recognizes Africa’s Potential. Do You?

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Matthew Davis, CFA
| September 30, 2010

If you haven't heard about Walmart's move into South Africa, you probably should read this article. One of the quotes that stood out to me was:

If you're an investor, you can consider this your official wake-up call on Africa. When companies like McDonalds and Walmart make a big foray into a market, they are telling you that they've done the homework and the population of that market is ready to join the rest of us in the 21st century. You guys know I'm big on frontier markets. Africa growing up and shaking off the colonial excuse...is a big component of my thesis.

This quote surfaced a question in my mind that I have pondered for years. What will happen when the U.S. no longer sees Africa as a problem to fix and but instead sees the continent as a viable market? It wasn't until reading this story that I suddenly found a very tangible analogy that helps provide answers to my question.

For analysis sake, I'm going to compare Walmart's entry into Africa, to Starbucks' entry into a "transitional neighborhood" in Washington, D.C. If you agree to this comparison, then the answer to my question is some positive and some negative. Let's rewind...When I moved to Capitol Hill in 2004, I remember walking down Barracks Row (the transitional neighborhood.) Eighth Street, the main drag of this neighborhood had a Chinese restaurant, a few dingy bars, a Subway, a liquor store, a Blockbuster and sure enough...a Starbucks (which had recently opened). Fast forward to today. The Barracks Row of 2010 is a very different place. There is a Harris Teeter, and a slew of high-end restaurants and yoga studios. In just five years, it went from a place I had to walk through quickly for safety reasons, to a destination for families on Sunday morning.

Barracks Row has been literally transformed!

I bet the people who bought their homes in the neighborhood five years ago are cheering. But what about the people who can't afford the property taxes anymore? Or the people who owned the homes that have been razed to put in the new 12-story luxury apartment complex? A few of the original property owners are holding out, but most are getting bought out. Many of the small businesses of five-plus years ago are long gone. Don't worry, the Chinese restaurant is still there.

So this brings up another question: is there a way that the invisible hand of capitalism can move through a developing country without knocking out what’s currently present?

So you see, the news of Walmart's entry into Africa hit me with a bit of excitement and concern. RENEW has been hoping for this engagement from the West for years, even encouraging it. But in our stomachs we also know it must be done carefully. There is a way capitalism can create a win-win. But it will take stakeholder priorities to be mutual and collaboratively defined and not driven by financial on one end, and social hand-outs on the other. Terms like partnership, expectations and responsibility should be coupled with revenue, margins and market share. My observations in Africa have been you’re usually talking about one or the other, and not both.

So I hope this is a wake up call for you on Africa. Let's continue to build the momentum. And let's also make sure we seek to bolster those businesses that are already there. Let's find creative ways to enter and partner with the local economy. In America, we love to revitalize our main streets. But these revitalization efforts don’t typically occur until after the town has experienced a boom and bust; years later, after the hangover, the people, non-profits and businesses work together to revitalize. Let's try to find a model that goes right to revitalization and skips the boom and bust.

And as for Africa — like the wisdom a consultant might have shared with an entrepreneur on 8th Street in 2004 — "It's time to take your game to the next level."

Contact us at renew@renewstrategies.com or follow us on Twitter @RENEWLLC to find out more about following Walmart's lead.