South Africa: The Retail & Brand Landscape

As some of you may already know, I’ll be traveling to Cape Town this week for the 2016 Global Summit of the Consumer Goods Forum. This year’s theme is “Seizing Opportunities in the Face of Disruption,” and I think that South Africa provides a perfect setting for the topic at hand. The South African market is both young and ever-evolving, and I’m excited at the prospects for innovative disruption in Africa’s second largest economy.

South Africa has a tremendous kinetic potential both within its borders and spreading out to Africa as a whole. With its high urbanization rate, both current and projected, and a quickly growing middle class, South Africa is primed for continued expansion. In fact, some of the strongest evidence of this is SA’s 2011 admittance into what is now the BRICS coalition alongside Brazil, Russia, India, and China.

Framing this potential is South Africa’s unique patchwork of traditional and modern outlets, which are ripe for disruption and innovation; especially in the ways we can apply eCommerce and other methods to shift the status quo away from traditional commerce. Through various sources I tried to educate myself on what is happening with retail in South Africa. 

The traditional market is underpinned by the ‘Spaza,’ a uniquely South African concept that originated from the necessity of providing goods to residents dealing with the sprawl of the townships in the country. A small, informal convenience store, generally run from the owner’s home, these shops are spearheading huge growth in SA’s traditional trade sector, leaping from 31,000 outlets to 134,000 in the past two decades. They offer a built-in location convenience that few other outlets can match, and the numbers are clearly bearing this out.

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Besides the growth evidence, studies show that consumers shop at spazas, on average, four times a week. While they’re still using supermarkets for total shops, they generally only do those large buys once a week, showing the huge frequency advantage traditional markets maintain. Also, studies show that the average Spaza consumer, faced with the stores’ often limited selections, tend to decide very quickly on purchases. They are far more likely then, to purchase established brands, which creates a difficult situation for new brands attempting to gain a foothold.

Modern trade outlets are showing steady growth however, with over 4,500 outlets nationally; and 70% of SA consumers using them for larger shopping trips. But close to 50% of shoppers are still using the spazas for small, frequent trips and top-up shopping.

What can modern trade stores and brands do to disrupt this market paradigm and reposition themselves to compete?

We know that modern outlets offer both wide varieties of goods, and the ability to purchase those goods in bulk to deliver better prices to the end consumer. This will always be the case, but it has much more novelty in an emerging market. And while modern outlets will always struggle to compete with the proximity convenience of traditional stores, it’s important to note that SA internet accessibility has increased nearly 4% from last year, making it much easier for consumers to make online purchases and pre-decisions.

It also allows brands a way to create awareness that will translate to sales both in traditional and modern markets, while giving consumers a new way to interact with both the brand and the markets. While only about 52% of South Africans have internet access, this will only increase. These first-time web consumers will be able to take advantage of eCommerce at an ever-increasing rate, while being highly sensitive to novel promotions and concepts that web access can bring.

If modern outlets want to compete with traditional markets, they will have to appeal to this rapidly growing group of shoppers. By leveraging emergent internet capabilities, they can create convenience that rivals the spazas while offering options that can’t be matched by a corner store.

Likewise, the smart play for brands is to utilize the web to get out ahead of established brands that have no presence outside of traditional markets, creating a brand recognition that will literally have consumers asking for them by name, in both spazas and modern outlets.

With such a large potential for growth, there’s going to be plenty of room for both traditional and modern outlets moving forward. However, only non-traditional outlets have the capability or wherewithal to utilize disruption to create a jumping-off point for competitive convenience and focused brand appeal. To miss this opportunity could be devastating.

I look forward to experiencing this ever-evolving market place for myself, and can't wait to hear about South Africa from Zelda La Grange who served in Nelson Mandela's government & the legendary South Africa team's Rugby captain François Pienaarat at the conference.