By Devon Maylie
JOHANNESBURG-Since it was founded decades ago, South Africa's Foodcorp has built itself into one of the country's biggest food companies. Now it is remaking some of its basic procedures, for example, setting up a four-person team to develop peanut-butter production targets for Wal-Mart Stores Inc.
"It's a new process, a new way of doing business," says Tom Pienaar, group sales director for Johannesburg-based Foodcorp. While Foodcorp previously conducted its own analysis to determine a customer's demand, it now is working with Wal-Mart to set production.
Six months after the U.S. company won final regulatory approval of its $2.4 billion deal for control of African retail chain Massmart Holdings Ltd., South African suppliers are scurrying to learn the Wal-Mart way.
They are ramping up production, rolling out advertising campaigns and sweating over whether they can sell at discounted prices for extended periods. Some are even considering requests to begin night deliveries-long a taboo in a country notorious for carjackings
The courtship of the world's largest retailer represents a potential turning point for companies that make everything from bread to umqombothi (a type of beer). By linking up with Wal-Mart, some South African suppliers could join a global supply chain for the first time.
A few players dominate South Africa's retail industries, a legacy of apartheid, when many companies of all sorts pulled out or stayed away under the threat of sanctions. Three domestic chains control about 90% of the supermarket sector. And South African food suppliers were left to build their own brands while jostling for a share of a relatively small market.
By coming into South Africa, Wal-Mart has set its sights on a bigger market-the entire continent. And South African suppliers see that expansion as their ticket into a wider, even global, market.
"We are desperate not to be left behind," says Tjaart Kruger, chief executive of Premier Foods (Pty.) Ltd., South Africa's largest flour producer and one of the Massmart suppliers that is in talks with Wal-Mart. "If they call, we're there."
Getting South Africa right is important for Wal-Mart too. With sales growth slowing in the U.S., Wal-Mart is relying more heavily on emerging markets to drive demand; Africa remains one of the few regions untapped by global retailers.
Wealth from substantial natural-resource discoveries has produced a growing middle class of potential new customers-if retailers can tackle a limited infrastructure that challenges cross-border deliveries. Labor relations can also pose problems, as seen most vividly in the deadly violence that has erupted at a platinum mine in South Africa. Wal-Mart's South Africa operation is near closing a deal to open its first store in Kenya and has expansion plans for Angola, Mozambique and Zambia.
Wal-Mart has hit hurdles on the continent, though it has been able to use lessons learned from entering Germany, India and elsewhere. (Please see accompanying article.)
Wal-Mart executive Don Frieson, who is supervising the merger integration here, says the goal in South Africa is to make Massmart a better Massmart, not a Wal-Mart.
Peanut-butter maker Foodcorp, which also makes biscuits and other foods, was one of the first suppliers chosen to go to Wal-Mart's headquarters in Bentonville, Ark., to learn procurement practices.
Foodcorp's Mr. Pienaar says Wal-Mart's distribution centers were more automated than anything in South Africa, where labor is cheaper than in the U.S. Goods entering and exiting warehouses and stores worked "like a machine," he says. In South Africa, trucks typically wait for hours to unload at the back of stores.
Executives from Amalgamated Appliance Holdings Ltd. also visited Wal-Mart's headquarters.
"When we went to Bentonville, all our discussions were around the consumer. It was, 'Position it like this for the consumer' and 'Find the right price point for the consumer,' " says Alan Coward, CEO for the company, which imports appliances such as Russell Hobbs toasters.
Not every South African supplier has embraced Wal-Mart.
The U.S. chain's "Everyday Low Prices" model troubles Shoaib Moosa, director of sales and marketing at Willowton Group, South Africa's biggest cooking-oil producer. He says Wal-Mart wanted the company to cut prices for a 10-week promotion. Willowton refused, Mr. Moosa says, because of volatile sunflower-seed prices.
"They're not very happy with that," he says. "We're worried about being bullied into a corner; I am talking to the largest retailer in the world. They can easily import and collapse the market."
Wal-Mart says it helps suppliers by using its global knowledge and experience to cut costs in distribution and logistics. Promotions have been successful for many producers and more are asking to participate, Wal-Mart says, adding that there are no consequences if a supplier chooses not to join a promotion.
Meanwhile, the prospect of a Wal-Mart contract has pushed some companies to think the unthinkable.
For Clover SA, that has been deliveries of its cheese and milk after midnight. Initially reluctant, Clover CEO Johann Vorster says he is coming around to the idea because it would save time and money. His trucks typically have departed Clover's plants around six in the morning and sat in traffic for several hours.
"Wal-Mart is very interactive," Mr. Vorster says. "They really are trying to understand the local market and work with us. It's very positive at the moment. Maybe in a year's time it will be different."
Write to Devon Maylie at devon.maylie@dowjones.com
