[South Africa] The future of spaza shops is local and modern, BCG study

The traditional retailer, known in South Africa as a spaza shop, is the cornerstone of socio-economic systems across Africa. Surpassing more advanced formats such as supermarkets and convenience stores, consumers buy more than 70% of their products from more than 3 million small independent shops across the continent. Despite this, the sector faces many challenges that need to be addressed in order for them to remain successful.

“Traditional retailers will continue to be the backbone of Africa’s economic environment and non-traditional participants in the ecosystem will find possibilities to grow alongside them and deliver greater financial inclusion throughout the continent,” says Nomava Zanazo, Consultant at Boston Consulting Group (BCG), Johannesburg. 

The research found that transformation in the sector is driven by who the shop proprietors are, the willingness of small retailers to modernise their businesses in response to changes in the landscape as well as a growing digital ecosystem in Africa. The modernisation of the sector as well as the available opportunities will manifest differently in each area depending on the available infrastructure, however, traditional shops will continue to exist for the foreseeable future. 

Evolving retail landscape

According to the report, the retail landscape differs across the five markets as various factors, such as size of the sector, level to which the modern sector is developed, and other infrastructure related challenges, vary in each market. South Africa’s modern retail sector is mature with supermarket chains accounting for more than 70% of retail sales. Although the sector has less room to grow, expansion is expected with convenience store formats and in townships through franchise models, while traditional shops retain a very strong presence in townships.

Despite these variations, there is a common trend found across markets that is contributing to the traditional shop’s increased momentum. These factors include small store modernisation, their readiness to diversify their operations in response to a hard climate, the expanding availability of digital solutions from technology start-ups, and supporting government regulations. 

In addition, traditional retailers tend to be young, educated, digitally savvy and financially included. In South Africa, 76% of traditional retailers are male with an average age of 33.  85% have an education level higher than high school, while 86% have a smartphone and 74% have a bank account. 

43% of South African traditional retailers noted that they experienced a wide range of challenges as reasons for why they had mixed feelings about the future of their businesses, and these included but are not limited to the Covid-19 pandemic as well as pressure from modern retailers. However, a rising number of new digital technology companies are delivering digital solutions that can help overcome obstacles and expedite their growth Locally, the start-up Flash provides e-payment services to more than 190 000 traditional shops, allowing traditional retailers to still be able to get business from customers who may not be carrying cash, making it the country’s largest network for informal retailers. This indicates that a market exists for more digital products.

Driving future growth

“Traditional retail’s future is local and increasingly modern with successful formats tailored to the needs of their communities and growth driven by domestic ecosystems of entrepreneurs, investors, and innovators,” says Zanazo. 

Traditional shops will continue to modernise and improve the quality of their offerings while the innovation ecosystem will help them to achieve better efficiency through financial and business-to-business supply chain digital solutions. One of the ways traditional retailers can grow is by becoming part of the network of modern retailers. “Based on our analysis, around 60% of the traditional South African retailers that we spoke to are interested in affiliation or franchise models,” she says. Locally, market share of hypermarkets, supermarkets and convenience stores will grow by around 4% in the next eight years through filling in the few remaining white spaces and expanding the spaza shop format in townships, reaching a market penetration of around 75% by 2030.

The report further predicts that Africa’s traditional retail future will take different shapes across the continent, identifying opportunities for players in the ecosystem. These opportunities may be brought about by private equity funds, venture capitalists and tech companies, fast-moving consumer goods companies, modern retailers, banks, and telecom companies as well as government.

For example, banks and telecom providers can achieve growth by developing new business models and offerings that are adapted to traditional retailers’ needs. Locally, an example of this was how Standard Bank helped retailers gain access to public financial aid during the pandemic through their COVID-19 Term Loan Scheme for SMEs and personal loan instalment relief for SME owners. 

The public sector can ease regulations and remove barriers to create an enabling business environment for traditional retailers, for example by supporting retailers who want to digitise with tax relief as well as training. Locally, the Wholesale and Retail Sector Education and Training Authority provides funding and incubation support and facilitates the skills development needs of retailers. “In order to reap the benefits of the opportunities presented, participants in the ecosystem need to assist traditional retailers to modernise and evolve to fulfil the changing and specific demands of their local communities,” concludes Zanazo.

The full article is available here.

www.bcg.com

 

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