When retail group Massmart began its black empowerment journey in 2004, executives believed that black economic empowerment was about selling equity in the business.
It was only later, after meeting verification company Empowerlogic, that the company's leadership recognised that BEE went a lot further and deeper into the organisation. "Recognising that we should be playing a bigger part in society enabled some quick and easy decision making," says corporate affairs director Brian Leroni, who runs the transformation project. "For instance, we agreed that 1% of profit after tax should be dedicated to corporate social initiatives."
Massmart has emerged as the most empowered company in the retail sector within the 2008 Top Empowerment Companies (TEC) survey. That reflects the foundation laid by recently retired CEO Mark Lamberti. One of the most prominent business leaders in the country, Lamberti is now chairman of the Massmart board of directors. He was succeeded by Grant Pattison. Massmart won with a fairly comfortable margin, though Lewis, Italtile and Foschini were close contenders for the title. None of the leading retailers fared well when it came to ownership, but where Massmart has a clear lead is in management control and employment equity. It falls down on skills development, but earns good marks for enterprise development and socioeconomic development.
Since rolling out its broad-based strategy in 2004 the company has come a long way. Last year it implemented its first BEE transaction. In the deal about 18m Massmart shares, worth about R900m, were placed into the Thuthukani Employee Empowerment Trust and 14 500 permanent employees become shareholders. They control 8% of the group, which trades through 238 stores in 14 countries in Southern Africa. "Some commentators criticised us for this deal," says Leroni. "But our staff were among the people disenfranchised by apartheid and our loyalty is to them. The value of these shares is now more than R1,3bn."
Two dividends totalling R14 378 300 were paid to the Thuthukani Trust last year - which is an average dividend of R983 to each participant in the trust, though specific individual dividend payments vary based on length of service.
Though the equity deal was the highlight of Massmart's transformation process, it was in many ways a culmination of much learning within the group's management team.
Preferential procurement is an ongoing challenge. "We procure R35bn worth of merchandise a year, but most of this comes from big suppliers selling branded merchandise."
Many of these big suppliers did not have scorecards, for one reason or another. Initially Massmart was patient, consulting with its suppliers and developing a self assessment tool with Econoserve to promote BBBEE among them. Now the retailer is in no mood to be gentle. "We will engage with our suppliers, and those that will not engage we will name and shame on our website - and there will be some doyens of SA business in that list."
Another area where the company has had a few adventures was in providing small black merchandise suppliers with access to the business. "We had small operators delivering detergent in 2 Coke bottles; seamstresses supplying poor quality goods, and bottled water and brick suppliers that were not competitive in a low-priced market."Massmart experimented with starting its own small businesses. "But we do not have that expertise." So executives switched their procurement focus to services, retaining black firms for security and cleaning services - with much more success.
In many cases the retailer pays the invoices of suppliers upfront to ensure they have the necessary cash flow to provide the service. "We started this about 15 months ago and now prepay about R125m worth of invoices."
One successful initiative was the launch of Hot Dog Café carts outside Builders Warehouse stores. "We wanted to create opportunities for unemployed entrepreneurs, who could not access finance," says Leroni.
After researching food opportunities from donuts to dagwoods, Massmart partnered the Umsobomvu Youth Fund and the Hot Dog Café franchise to establish the microbusinesses.
Umsobomvu, which matched Massmart's investment, selected the entrepreneurs while the franchise company was the incubator that provided the assistance to the individuals, in addition to managing the loan administration. "On average those carts are generating about R750 000/annum, while the top performing cart turned over R1,2m last year - it's a great example of BEE in practice."
Another successful initiative is Massmart's enterprise development project within CCW - its cash and carry retailer that's located in rural or peri-urban areas.
The model sees two owner/operators receiving 20% each of the equity in the store, 10% of which is purchased back from them after three years. "We select the site and supply the stock and expertise. They have the entrepreneurial commitment necessary to grow the store," says Leroni. "It's an opportunity for black career retailers to have a stake in their own business."
Massmart's skills development score is among the lowest in the sector, but it's up on its previous scores partially because of a new graduate development programme and new training for junior managers. Last year 22 black graduates began a two-year programme to prepare them for leadership roles within the group. Another 25 began this year. "The whole industry is faced with the challenge of a lack of equity at senior management level," says group training services executive Nivy Moodley. "Part of our objective is to position ourselves as a career retailer of first choice."
This focus on developing small entrepreneurs and talent within the organisation brings Leroni to a crucial point. "We learnt, through experience, that it is difficult to parachute black executives into the business. We tried it and we still do it. But we were not good at helping these guys adjust to our business."
By June last year the group had hit its employment equity targets across the board with the exception of executive management. So while 25,2% of senior managers are black, 41,7% of middle managers and 71% of junior managers are black. "We believe that now we have a platform in place to grow our own black talent."
