Walmart (NYSE:WMT), which already controls the biggest retailer in South Africa but hasn't had much success expanding to the rest of the continent, is in talks to buy its way into Kenya by way of that country's fourth-largest retailer, Reuters reported on Tuesday (Aug. 13).
The deal is a bit complicated: Walmart owns a majority share of South Africa's Massmart, which in turn would acquire either 67 percent or just over 50 percent ownership of Kenyan supermarket chain Naivas. Walmart has been in on-and-off talks with Naivas for a year and a half, according to Businessweek, but the two sides "could not agree on the valuation model," Naivas General Manager Francis Maswili said.
Walmart and several European chains have been trying to get a foothold in Africa for years because of growing economies in some nations—Kenya's economy, for example, is expected to grow 6 percent this year. But the large chains have had difficulty establishing the necessary logistical and political ties. Partnering with (or buying out) established local chains may be the easiest way to do that, but "easy" is a relative term here. In the case of the 28-store Naivas chain, Walmart's approaches to the family-controlled company have reportedly triggered a dispute among investors about whether to sell.
Walmart's focus on Kenya, on Africa's sub-Saharan east coast, would keep it from an immediate challenge by Carrefour, the world's second-biggest retailer, which is expanding into Ivory Coast and other countries on the west coast of the continent.
But in both cases there are even fewer guarantees than usual. As in China, U.S. and European chains have assumed that local upwardly mobile customers will behave the way the chains' existing customers do—and in many cases, customers specifically say they want Western-style formal retailers. In practice, the packaged goods and big cartloads that are big retailers' stock-in-trade haven't been accepted as well as the chains expected.
That should be another reason that partnering with Naivas, which knows the local retail market, is the best way for Walmart to go. But first it has to close the deal.
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