News / National
South Africa's big business wants spaza shop economy?
22 Nov 2024 at 10:04hrs | Views
Major businesses across South Africa are looking to capitalise on the country's booming informal economy, with many companies licking their lips at an opportunity worth hundreds of billions of rands.
New research from Trade Intelligence highlights that South Africa's informal fast-moving consumer goods (FMCGs), particularly in townships, has risen to new heights.
This sector serves as a cornerstone of daily life for many South Africans, encompassing a wide range of businesses, including spazas, street vendors, fast-service eateries, bottle stores, and taverns.
The retail research agency estimates that the size of South Africa's informal FMCG retail market (i.e. spaza-type stores) in 2023 will be R197 billion (+6.9% versus 2022), with at least 11.1 million people regularly shopping in its roughly 150,000 stores.
"While these communities are faced with some of the most difficult challenges, including high unemployment, poor service delivery and low household income, South African townships represent billions of rands in spending power," said Rogerwilco and Survey54 in their 2023 Township CX Report.
Trade Intelligence explained that the informal FMCG market is largely supplied by the formal independent trade (i.e. unlisted retailers and wholesalers), some corporate chains, and to a smaller but growing degree, directly from suppliers.
Independent cash-and-carry stores and wholesalers were the first formal businesses to recognise the value and potential of the informal trade and were serving these customers for decades before the end of Apartheid.
Valued at R259 billion, formal independents made up around a third of the total South African FMCG market in 2023, a significant slice of the overall grocery market pie.
The R197 billion informal retail sector, coupled with the R259 billion wholesale cash and carry market, makes the overall opportunity for businesses financially appetising.
Thus for the past two decades, the size and continued growth of the informal market and wholesalers have attracted the attention of formal retailers.
Formal retail chains began entering these sectors in the mid-2000s when zoning laws changed to allow big corporations to set up shops in and around townships and informal settlements.
In particular, these traditional retailers and some suppliers want to dominate the R259 billion wholesale supply of goods to informal traders.
However, many have struggled to break into the market.
"This is a complex and changing market to do business in due to blurred routes to market and continuous shifts," said Trade Intelligence.
"A once linear structure (supplier-wholesaler-trader-consumer) has developed into one where ‘channel blurring' has redefined the sector as an 'interactive ecosystem'," added the group.
Looking specifically at supermarkets, "some argue that the corporates are a threat to South Africa's informal sector, with a two-pronged strategy of setting themselves up to service the market while seeking opportunities and locations to supplant it where practical and profitable."
"However, others believe that the big chains also aid informal traders by providing them with other, at times for conveniently located, options for sourcing their goods," said Trade Intelligence.
Shoprite is seen to have been the most effective in tapping into this growing market through its Usave stores, specifically targeting spaza shops' supply.
Usave, launched in 2003, now has 463 stores countrywide, primarily in townships and rural towns — the heartland of the low-income consumer market.
Recently, the company announced plans to double the number of Usave stores it has in the next five years (an additional ~ 540 stores) to tap into the strong growth of the informal economy.
"There is room for at least 1,000 of these stores in SA over the next five years. We use these store formats where we can't own land, such as where tribal authorities own the land or where there is limited infrastructure," Shoprite CEO Pieter Engelbrecht told Business Day TV.
"The macroeconomic environment is tough for consumers, particularly when it gets to mid-month. The cost of travel is also burdensome. That is where Usave comes in handy.
"We have seen a strong interplay between Shoprite and Usave. Our data shows that [at] month-end people flock to Shoprite to buy their groceries, but come mid-month they visit Usave stores because they are within walking distance," added the CEO.
Looking at competitor Pick n Pay, the company's decision to withdraw from townships due to political uncertainty in the 1990s proved to be a costly mistake for the retailer.
By the time Pick n Pay began offering bulk deals to informal retailers through the launch of their "Traders welcome" campaign in 2016, it was effectively outcompeted by the already established Shoprite and independent wholesalers.
Massmart also tried to compete in this sector through its Cambridge Foods cash and carry business, but the company ended up selling these stores to Shoprite in August 2021.
"As South Africa's corporate supermarket chains have started rolling out brands and formats more geared toward township retail proper, they are not only a route to market but also competition to the independent trade, offering convenience through close-to-home shopping," said Trade Intelligence.
SPAR, for example, outsources some township deliveries for its SPAR2U delivery service to businesses like Delivery KA Speed SA and KasiD.
Traditional retailers have been concentrating on capturing the independent wholesale market that serves informal traders. However, FMCG companies across the country are increasingly targeting these informal traders directly.
Companies like SAB and Coca-Cola have long recognised the value of informal trade, investing in point-of-sale promotions, store upgrades, and business training.
In 2023, Tiger Brands, known for major South African brands like Koo, Oros, and Jungle Oats, unveiled a strategy to boost its presence in informal township stores.
They plan to partner with more spaza shop owners and expand their reach, aiming to have their products in 130,000 to 150,000 stores over the next five years. They have already collaborated with around 46,000 stores in the past two years.
"With the local informal market remaining largely untapped and statistics showing that it is growing at a faster rate than the modern trade, we see exponential room for growth in this segment and are engaging closely to support our traders and better present our brands to consumers at the point-of-purchase," Luigi Ferrini, Tiger Brands Chief Customer Officer told Trade Intelligence.
New research from Trade Intelligence highlights that South Africa's informal fast-moving consumer goods (FMCGs), particularly in townships, has risen to new heights.
This sector serves as a cornerstone of daily life for many South Africans, encompassing a wide range of businesses, including spazas, street vendors, fast-service eateries, bottle stores, and taverns.
The retail research agency estimates that the size of South Africa's informal FMCG retail market (i.e. spaza-type stores) in 2023 will be R197 billion (+6.9% versus 2022), with at least 11.1 million people regularly shopping in its roughly 150,000 stores.
"While these communities are faced with some of the most difficult challenges, including high unemployment, poor service delivery and low household income, South African townships represent billions of rands in spending power," said Rogerwilco and Survey54 in their 2023 Township CX Report.
Trade Intelligence explained that the informal FMCG market is largely supplied by the formal independent trade (i.e. unlisted retailers and wholesalers), some corporate chains, and to a smaller but growing degree, directly from suppliers.
Independent cash-and-carry stores and wholesalers were the first formal businesses to recognise the value and potential of the informal trade and were serving these customers for decades before the end of Apartheid.
Valued at R259 billion, formal independents made up around a third of the total South African FMCG market in 2023, a significant slice of the overall grocery market pie.
The R197 billion informal retail sector, coupled with the R259 billion wholesale cash and carry market, makes the overall opportunity for businesses financially appetising.
Thus for the past two decades, the size and continued growth of the informal market and wholesalers have attracted the attention of formal retailers.
Formal retail chains began entering these sectors in the mid-2000s when zoning laws changed to allow big corporations to set up shops in and around townships and informal settlements.
In particular, these traditional retailers and some suppliers want to dominate the R259 billion wholesale supply of goods to informal traders.
However, many have struggled to break into the market.
"This is a complex and changing market to do business in due to blurred routes to market and continuous shifts," said Trade Intelligence.
"A once linear structure (supplier-wholesaler-trader-consumer) has developed into one where ‘channel blurring' has redefined the sector as an 'interactive ecosystem'," added the group.
Looking specifically at supermarkets, "some argue that the corporates are a threat to South Africa's informal sector, with a two-pronged strategy of setting themselves up to service the market while seeking opportunities and locations to supplant it where practical and profitable."
"However, others believe that the big chains also aid informal traders by providing them with other, at times for conveniently located, options for sourcing their goods," said Trade Intelligence.
Shoprite is seen to have been the most effective in tapping into this growing market through its Usave stores, specifically targeting spaza shops' supply.
Usave, launched in 2003, now has 463 stores countrywide, primarily in townships and rural towns — the heartland of the low-income consumer market.
Recently, the company announced plans to double the number of Usave stores it has in the next five years (an additional ~ 540 stores) to tap into the strong growth of the informal economy.
"There is room for at least 1,000 of these stores in SA over the next five years. We use these store formats where we can't own land, such as where tribal authorities own the land or where there is limited infrastructure," Shoprite CEO Pieter Engelbrecht told Business Day TV.
"The macroeconomic environment is tough for consumers, particularly when it gets to mid-month. The cost of travel is also burdensome. That is where Usave comes in handy.
"We have seen a strong interplay between Shoprite and Usave. Our data shows that [at] month-end people flock to Shoprite to buy their groceries, but come mid-month they visit Usave stores because they are within walking distance," added the CEO.
Looking at competitor Pick n Pay, the company's decision to withdraw from townships due to political uncertainty in the 1990s proved to be a costly mistake for the retailer.
By the time Pick n Pay began offering bulk deals to informal retailers through the launch of their "Traders welcome" campaign in 2016, it was effectively outcompeted by the already established Shoprite and independent wholesalers.
Massmart also tried to compete in this sector through its Cambridge Foods cash and carry business, but the company ended up selling these stores to Shoprite in August 2021.
"As South Africa's corporate supermarket chains have started rolling out brands and formats more geared toward township retail proper, they are not only a route to market but also competition to the independent trade, offering convenience through close-to-home shopping," said Trade Intelligence.
SPAR, for example, outsources some township deliveries for its SPAR2U delivery service to businesses like Delivery KA Speed SA and KasiD.
Traditional retailers have been concentrating on capturing the independent wholesale market that serves informal traders. However, FMCG companies across the country are increasingly targeting these informal traders directly.
Companies like SAB and Coca-Cola have long recognised the value of informal trade, investing in point-of-sale promotions, store upgrades, and business training.
In 2023, Tiger Brands, known for major South African brands like Koo, Oros, and Jungle Oats, unveiled a strategy to boost its presence in informal township stores.
They plan to partner with more spaza shop owners and expand their reach, aiming to have their products in 130,000 to 150,000 stores over the next five years. They have already collaborated with around 46,000 stores in the past two years.
"With the local informal market remaining largely untapped and statistics showing that it is growing at a faster rate than the modern trade, we see exponential room for growth in this segment and are engaging closely to support our traders and better present our brands to consumers at the point-of-purchase," Luigi Ferrini, Tiger Brands Chief Customer Officer told Trade Intelligence.
Source - businesstech
