Makro and Game owner still reeling from July unrest as it continues to count losses
Sales in Massmart stores declined by 1.3% in the 48 weeks ended on 28 November. The retail giant blames the decline mainly on store closures following the July unrest. Massmart lost two large Makro stores, while another 41 stores suffered significant damage because of the unrest. The damage caused by the July unrest have caused serious setbacks for Makro and Game stores owner, but thankfully Black Friday sales lived up to last years’ records despite some stores remaining closed because of the extensive structural damages they suffered. Massmart – which also owns Builders Warehouse and Cambridge Foods – extended Black Friday into a four-week-long Black November event as it did in 2020. It said during that period, sales at comparable stores, which include stores impacted by the looting, amounted to R9.2 billion. This was broadly in line with last year’s Black November event. But the retail giant noted that stores damaged by the looting – and which remained closed or operated at limited levels impacted its 2021 sales. Massmart highlighted two Makro stores in Pietermaritzburg and Springfield that remained closed, as well as damaged Game stores. The unrest resulted in Massmart losing two large Makro stores, while another 41 stores suffered significant damage. Massmart previously reported that it would cost around R2.5 billion to replace lost stock and repair properties damaged during the July unrest. The company estimates that it will suffer an accounting loss of about R650 million even after receiving an insurance payout from Sasria. The group has so far received an initial insurance payment of R435 million from Sasria, excluding VAT. The state-owned insurer also approved another R565 million, excluding VAT, which will be the final payout that Massmart will receive some time in 2022. More unrest-related losses Massmart recorded R75.3 billion in sales for the 48-week ended on 28 November 2021, a 1.3% decline from comparable sales in the same period in 2020. But Makro and Builders still did well will their total sales increasing by 8% and 8.1% respectively compared to the same period in 2020. On the other hand, Game continues to drag the group, alongside the Wholesale Cash & Carry business, which is suffering because of lower sales to the hospitality, restaurant, and catering sectors. Game’s total sales of R13.6 billion were 8.4% lower than the same period in 2020. Massmart has largely attributed the overall decline in group sales to the unrest as some stores remain closed until December. But it was also hit by the liquor trading restrictions. Over and above disruptions caused by store closures, Massmart said it also suffered supply chain disruption since looters ransacked two of its distribution centres in KwaZuluNatal. Because of this, the retail giant said it had sub-optimal stock levels in key categories, specifically home-electronics and appliances. Massmart estimates that it lost around R450 million in trading profits because of store damages between July and December 2021. So far, it has received an initial business interruption payment of R100 million excluding VAT from its private insurers not related to Sasria. The group added that because it expects most of its insurance claims to be settled in 2022, it has to incur the relevant losses on its income statement in 2021. However, its US parent company, Walmart, has agreed to give it a R4 billion loan to help optimise Massmart’s balance sheet in the short to medium term. (Fin 24, 2021) Source: https://www.news24.com/fin24/companies/retail/makro-and-game-owner-still-reeling-from-july-unrest-as-it-continuesto-count-losses-20211221
QUESTION 2 (25 Marks)
In meeting its objectives, organisational risk management is also concerned with planning to deal with loss situations and to recover from losses. Discuss how businesses like Makro and Game can implement contingency and emergency planning.
Organizational risk management is a critical aspect of business operations, especially for companies like Makro and Game that have faced significant challenges, such as the July unrest in South Africa. Contingency and emergency planning are essential components of risk management, helping businesses prepare for and respond to unforeseen events that can lead to losses. This essay explores how businesses like Makro and Game can effectively implement contingency and emergency planning to mitigate risks and recover from losses.
To implement effective contingency and emergency planning, businesses must begin by conducting a comprehensive risk assessment. This involves identifying potential risks, both internal and external, that could impact the organization. For Makro and Game, examples of risks include civil unrest, natural disasters, supply chain disruptions, and economic downturns. Understanding the specific risks is crucial for targeted planning.
A contingency plan is a proactive strategy that outlines how an organization will respond to various risks. Businesses like Makro and Game can implement the following steps in developing a contingency plan:
a. Risk Prioritization: Prioritize risks based on their potential impact and likelihood of occurrence. Focus resources on addressing high-priority risks like civil unrest, given the recent experience.
b. Establishing Response Teams: Form dedicated teams responsible for executing the contingency plan. These teams should have clear roles and responsibilities.
c. Communication Plan: Develop a communication strategy that ensures effective communication with employees, customers, suppliers, and the public during a crisis. Transparency is key to maintaining trust.
d. Resource Allocation: Allocate necessary resources, including financial reserves, to address the identified risks. This may involve investing in security measures or insurance coverage.
e. Training and Drills: Regularly train employees and conduct drills to ensure everyone knows their roles and is prepared to respond effectively in an emergency.
Emergency planning focuses on immediate actions to be taken during a crisis. For Makro and Game, this can involve the following elements:
a. Evacuation Procedures: Develop clear evacuation plans for employees and customers in case of emergencies like fires or civil unrest. Ensure that evacuation routes are well-marked.
b. Safety Measures: Implement safety measures, such as fire suppression systems and security protocols, to protect people and assets.
c. Inventory Management: Maintain real-time inventory tracking systems to quickly assess losses and replenish stock after a crisis.
Business continuity planning ensures that the organization can continue its essential operations even during a crisis. Key components include:
a. Data Backup and Recovery: Regularly back up critical data and establish recovery protocols to minimize data loss and downtime.
b. Alternative Suppliers: Identify alternative suppliers and establish relationships with them to ensure a continuous supply chain.
c. Remote Work Infrastructure: Develop the infrastructure to support remote work if necessary, ensuring business operations can continue during disruptions.
Contingency and emergency plans should not be static documents. Regularly review and update them to adapt to changing circumstances and emerging risks. Conduct simulation exercises and real-world testing to identify weaknesses and refine response strategies.
In conclusion, businesses like Makro and Game must prioritize contingency and emergency planning to effectively manage risks and recover from losses. By conducting thorough risk assessments, developing comprehensive contingency plans, and implementing emergency response and business continuity strategies, these companies can enhance their resilience in the face of unforeseen events. Continuous review and testing are essential to ensure the plans remain effective in an ever-changing business environment. By doing so, they can better protect their employees, assets, and reputation while minimizing the financial impact of crises.
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