SA retail ripe and ready for growth - Euromonitor
By Laura Durham | Wednesday, February 13, 2013
According to Euromonitor International’s assessment, convenience stores, ecommerce and private label will lead growth within the South African retail landscape for the next five years.
Growth in the traditional grocery retailing space has been driven by spaza shops.
Possession of internet enabled computer and penetration of internet retailing by country in 2012. Source: Euromonitor International
Euromonitor expects retailers to pay more attention to their private label offerings going forward, with more emphasis on increasing their offerings to cater for all consumers of different income streams. Pick n Pay is already doing this with its tiered range.
“The South African retailing industry has recorded exceptional growth over the past few years despite the rising cost of living outweighing the rate of income growth. “We have seen the South African retailing industry growing at an average of 8.3% in terms of value over the past five years,” comments Ronald Tinashe Mapiye, retail analyst at Euromonitor. Grocery retail accounts for around 55% of the overall retail sales.
Big families fuel food demand
Food remains one of the top contributors to revenue growth within the grocery sector. Mapiye says this is driven by the proliferation of big families in the country. “South Africa has one of the highest birth rates with 21 people born per every 1 000 people. The large families are common, especially in black communities…and an average family would have more than four people living in the same household.”
Non-grocery retailers making up 43% of the total retail sales in SA. The other 2% is made up of non-store retailing, including direct sellers, internet retailers, home shopping, as well as vending.
Shoppers still like spazas
Interestingly, traditional grocery retailers still play a big part of this retail growth “despite the fact that they’ve been outweighed in terms of growth by modern retailers,” notes Mapiye. This corroborates Nielson’s data, which Craig Henry presented in 2011, showing that independent retail still has the highest level of penetration despite this sliding in favour of branded (or ‘modern’) retail over the past few years.
Growth in the traditional grocery retailing space has been driven by spaza shops. “This growth has mainly been stimulated by the fact that these retail outlets provide convenience due to the fact that they are open for long hours whereas modern grocery retailers would have a stipulated time at which they are supposed to close,” explains Mapiye. In addition, if consumers have a longstanding relationship with a spaza shop owner, they can still buy anything on credit and pay when they get paid at the end of the month.
Ecommerce a massive opportunity
Euromonitor sees huge potential in non-store retailing, particularly in internet retailing where there has been “exceptional growth” in terms of value (remembering that it’s off a very small base). “The South African retailing industry has recorded double-digit growth over the past three years. However, the value contribution of the internet retail in contrast to the overall sales has been less than 1%,” comments Mapiye.
Euromonitor attributes this low value contribution to total retail sales because of the limited payment options, expensive internet access and slow and unreliable delivery turnaround times. “The credit card is still the more preferred option when consumers are transacting online and as a result of that, not many people are able to do that online as you know that the majority of the population in South Africa is still within the lower income streams and they cannot afford to have a credit card.”
Some headway has already been made to enable payments via debit cards. Last year, payment solutions company, PayU joined forces with Oltio (a joint venture company between Standard Bank and MTN) to enable consumers to make debit card payments through the mobile payment solution, payD.
Mobile for the money
The second factor prohibiting growth is that access to the internet is still expensive for the average South African. “So, if the internet becomes cheaper to everyone in SA then I really see much potential where you would see drastic growth and a higher value contribution to the overall sales as everyone would have access to the internet,” says Mapiye.
It is very likely that internet access will come from smart phones rather than computers. According to Euromonitor, nearly 95% of households owned a mobile device in 2011. It is expected that this year, more smartphones will be sold than feature phones, thus providing a major boost to mobile internet usage.
Already, online retailers are finding that consumers are accessing their sites from their mobile and tablet devices. CEO, Gary Hadfield, says that 20.5% of loot.co.za’s traffic over the Christmas period came from mobile devices.
Delivery needs to improve
The other factor still restricting growth is delivery turnaround times. “People still see it as something that is not reliable and as such, their level of confidence in transacting online is still very low. So, if the delivery turnaround times can be improved then I also see the internet retail sector growing,” says Mapiye.
The next five years
Euromonitor expects retailers to pay more attention to their private label offerings going forward, with more emphasis on increasing their offerings to cater for all consumers of different income streams. Mapiye points to Pick n Pay as a retailer already doing this.
In 2011, Pick n Pay launched a new private label brand, ‘Finest’, positioned as the ultimate offering in the Pick n Pay-branded range of products. Like many of its international counterparts, Pick n Pay has taken a tiered approach to private label: Good (No Name), better (PnP) and now best (Finest).
Also over the forecast period, Euromonitor expects more retailers to set up online retail stores in response to the growth in the number of subscribers in SA. “Amongst the major South African retailers, only a handful have set up online stores and the impact on the bottom line is yet to be seen. Even the two most active players, Pick n Pay and Woolworths, derive less than 1% of their total sales from internet retailing,”comments Cedric Bra, retail analyst at Euromonitor International.
Value clothing retailer, Mr Price, launched an online store in August last year and Mapiye sees this as a “clear sign” that as payment options increase, internet access becomes easier and cheaper, and delivery improves, more online stores will open up in the future.