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2021-10-06

Building South Africa’s Informal Trade to Rebuild a Nation

As a pillar of the township economy and job creation, the informal trade also provides unique opportunities for partnership and collaboration with FMCG manufacturers and service providers of the formal sector.


Natasha Smith, Managing Director of Trade Intelligence | Trade Intelligence

To leverage these growth opportunities, Trade Intelligence is hosting the Independent Trade Forum on the 19 and 20 October 2021, where stakeholders across the independent trade will be able to connect and hold effective discussions.[KB1] 


Like most emerging markets, South Africa has a large informal business sector often referred to as the “hidden economy”. In terms of South African grocery retail, as much as 40% of total food bought by consumers each year is from informal traders such as hawkers, small and larger spaza shops and midi wholesale traders, who service 77% of the population. Although this channel is constantly confronted with challenges, it is a resilient one, whose value was estimated to be worth R157bn1 in 2019. Millions of people rely on informal traders not only to provide them with basic essentials, but also to sustain the kasi (township) economy and job creation.

From bust to boom… and bust again
Just over a decade ago there were many within the FMCG industry who believed that the informal trade was ‘dying’. The major corporates were extending their reach into previously underserved areas at a rapid pace, understanding the enormous potential that the ‘mass economy’ represented. However, significant stumbling blocks stood in the corporates’ way – poor infrastructure into these areas made the business of building and stocking stores arduous, regional differences meant that what worked in Mamelodi could not automatically be rolled out in Umlazi. This left the door wide open for informal traders to survive, and in many cases thrive.

We do not need reminding of just how much the COVID-19 pandemic has shaken up the world and our country, let alone our industry. The impact on the informal trade has been far more devastating, however, as these small businesses are not able to absorb the costs of lost trading hours and increased hygiene regimes like the corporates. Rental obligations were and still are becoming more difficult to meet and traders have also seen their shopper base decline as more and more South Africans become retrenched or experienced salary cuts. To this we also add the effects of the recent unrest in Gauteng and KwaZulu-Natal, the exact extent of which is still being calculated. According to a report from Yebo Fresh in collaboration with Ask Africa one in three spaza shops experienced looting, nearly 80% of spaza shops lost more than half of their stock and 87% of spaza shops require capital support to resume trade. 

Where to for growth?
The informal trade grew in response to shoppers’ needs for affordable and close-to-home solutions that the formal retail chains did not fulfil, thus becoming a pillar of the township economy that enables people to shop at their convenience anytime. In order for the informal trade to rebuild and grow, it is vital that this aspect of “meeting shoppers’ needs” be sustained and developed.

Trade Intelligence (Ti) aims to enable collaboration and to this end we have identified certain areas that are ripe for the picking within the trade, opportunities where suppliers, services providers and the traders can work together to enable development within this largely untapped market, made up of as many as 200,000 spaza shops, spazarettes, superettes, midi wholesalers, and hawkers:
 
Private labels/cheaper products
Although customers enjoy the consistency of leading brands, shrinking wallets have forced them to consider alternative products. In a recent informal shopper survey conducted by Trade Intelligence, 36% of the shopper respondents switched to cheaper brands and private label products during 2020. Shoppers say their willingness to change to cheaper brands is driven by satisfaction with the quality and affordable price of such products. The key here for manufacturers wishing to enter the informal space with more affordable products is to keep on top of continually innovating consumer preferences to achieve the right price/value equation.

Health and wellness focus
The pandemic has increased the demand for products that support health and wellness, ranging from supplements to healthier, fresh foods. In an informal shopper survey conducted for Trade Intelligence, 68% of shoppers or respondents said that they purchased more fresh produce (fruits and vegetables) in 2020 from their local spaza shops than the year before. Shoppers bought more fresh ginger, lemons, garlic, honey, cinnamon, and turmeric, all ingredients which are known to boost immunity. By bolstering their health and wellness offering informal traders are broadening their offering while satisfying shopper needs.

Value-added services
The ultimate purpose of providing value-added services in any retail environment is to diversify revenue streams and provide shoppers with a reason to spend more time in the store. Informal traders have always understood the value of offering airtime/data, ATMs and being water and electricity pay points for this reason. The importance of value-added services has been amplified by the pandemic, however – not only is it cheaper to access these services closer to home (saving on taxi/bus/train fares into town or the city), but since early 2020 shoppers in general have stayed away from larger regional malls for fear of getting infected with COVID-19 in crowded stores. This has also opened up the opportunity for more entrepreneurial informal traders to offer delivery services to their shoppers.

Supply chain & technology
Investigating ways to improve the supply chain through investment and partnership with third-party distributors and township delivery services such as Yebo Fresh, Zande, and Malaicha is a significant untapped opportunity waiting to be seized. Since these service providers already operate within the informal trade, their experience may help guide manufacturers and suppliers in their collaboration with informal traders, through best service options that will close the gap between traders and their customers.

At Trade Intelligence we believe in the power of partnership between private and public, corporate and informal entities and regard such partnership as an indispensable part of building not only the informal sector but business in our country as a whole. These themes and more will be explored and discussed in the upcoming virtual Independent Trade Forum 2021 held on the 19 and 20 October 2021, where stakeholders across the independent trade will be given the opportunity to connect, have real discussions about real issues and gain indispensable insights for growth in the independent sector. 

 


 


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