The ongoing dynamic of modern versus traditional trade within South Africa’s retail sector has seen exceptional growth of the spaza shop format with an increase from 45% to 53% of South African modern trade shoppers (2015 vs 2016) who now also utilise spazas. At present, South Africa is home to a total of 2,500 modern trade (MT) and 140,000 traditional trade (TT) outlets which contributed towards South Africa’s annual retail sales (to March 2017) of R316.5 billion. Of this, urban and rural traditional trade formats accounted for 22.3% or R70.5 billion.
This finding stem from Nielsen’s annual Shopper Trends Study which is conducted across more than 50 countries in the world. In South Africa, the study surveys 2,500 18- to 65-year-old consumers, balanced by demographic and made up of a mix of male/female buyers who purchase groceries from modern trade outlets in urban areas.
Nielsen Consumer Insights Director Esti Prinsloo says: “Even though spend is still higher in modern trade, there is strong sales growth coming through in traditional trade outlets with spend in urban independents (mostly spazas) growing at 13.4% in the year ending March 2017 and rural outlets growing at 2.3%. This in comparison to hypermarkets which grew by 4.8% and supermarkets by 8.6%. It should be noted, however, that spaza stores are only one channel within a much larger collection of TT stores, which include: small independent grocers, self-service walk-in outlets and countertop formats,” she clarifies.
Close encounters of the shopping kind
Another significant development is a shift away from hypermarkets down from 21% to 14% of shoppers, within the same 2015 vs 2016 timeframe. “People are reverting back to local, as they’re not willing to travel to supermarkets due to the rising cost of transport. They’re therefore looking for stores in close proximity to where they live or commute,” Prinsloo explains.
South Africans are also shopping more frequently at spaza stores which has seen an increase from 18.4 to 19.4 times per month, while supermarkets have remained about the same. Prinsloo explains: “Spaza shops are ideally positioned for small top-up occasions, being conveniently situated on commuting routes and close to their shoppers’ homes.”
The wallet squeeze continues
So, what exactly is driving the growth with the traditional trade sector? As economic conditions intensify in South Africa, consumers feel it within their disposable income. This increased pressure has resulted in behavioural changes to make ends meet and cost saving has become the norm.
Prinsloo explains: “In 2015 we predicted that a decline in disposable income would have a significant impact on grocery shopping. This has now come to fruition, where in 2016, we saw consumers reducing spend on ‘nice to have’ items and buying them less frequently. In several categories, shoppers have also moved to smaller pack sizes to get the affordable price point, or larger pack sizes to make use of the value offering when they can afford it.”
Food inflation is driving an increase in grocery spend and to combat this, shoppers are reducing the number of items bought per shopping occasion. The ‘shop-around’ culture has also intensified with shoppers using two to three supermarket/hypermarket brands for their main grocery and top-up occasions.
Against this backdrop, shoppers’ love for doing grocery shopping is also declining, with 90% stating they enjoyed it in 2014 which dropped to 71% in 2016. The outtake is that as grocery prices increase, shopping is becoming less enjoyable. Shoppers who follow a strict budget has also increased from 71% in 2015 to 73% in 2016. Coupled with this, impulse purchases are down from 85% in 2014 to 71% in 2016.
This has also seen an intensification of shoppers who know prices and notice when prices change, having increased significantly from 64% to 75% (2014 vs 2016). There has also been an increase in promotion-seeking behaviour from 30% to 42% in the same period.
Price and promotion-seeking behaviour has also led to consumers becoming incredibly price sensitive. Prinsloo adds: “One of the strategies that has fed the growth numbers in modern trade is substantial investment in promotions.
“The biggest challenge for modern trade outlets is breaking the cycle of reliance on price and promotion to sustain growth. With low and squeezed margins, retailers will need to look for other ways to drive purchases, loyalty and the overall retail experience to ensure long-term growth.”