Building SA’s informal trade sector to rebuild a nation

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Abdifatah Awes (22) runs a small spaza shop in Gugulethu, Cape Town. SA’s informal business sector can collaborate with the formal sector to create an industry that can thrive once again. Photo: Waldimar Pelser
Abdifatah Awes (22) runs a small spaza shop in Gugulethu, Cape Town. SA’s informal business sector can collaborate with the formal sector to create an industry that can thrive once again. Photo: Waldimar Pelser

BUSINESS


South Africa has a large informal business sector and, within fast-moving consumer goods specifically, it is made up of as many as 200 000 spaza shops, superettes, midi wholesalers and hawkers. As a pillar of the township economy and job creation, informal trade also provides unique opportunities for partnership and collaboration with fast-moving consumer goods manufacturers and service providers in the formal sector.

To leverage these growth opportunities, Trade Intelligence is hosting the Independent Trade Forum on October 19 and 20 for stakeholders across the independent trade industry.

Like most emerging markets, South Africa has a large informal business sector, often referred to as the “hidden economy”. As much as 40% of total food bought by consumers each year is from informal traders, who service 77% of the population. Although this channel is constantly confronted with challenges, it is a resilient one, the value of which was estimated to be R157 billion in 2019. Millions of people rely on informal traders not only to provide them with basic essentials, but also to sustain the township economy and create jobs.

From bust to boom ... and bust again

Just over a decade ago, there were many within the fast-moving consumer goods industry who believed that informal trade was “dying”. Major corporations 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 in these areas made the business of building and stocking stores arduous, and regional differences meant that what worked in Mamelodi could not automatically be rolled out in Umlazi.

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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 our country, let alone our industry. The impact on the informal trade sector has been far more devastating, however, as these small businesses have not been able to absorb the costs of lost trading hours and increased hygiene regimes the way corporations have. Rental obligations were and are still becoming more difficult to meet, and traders have also seen their shopper base decline as more South Africans were retrenched or experienced salary cuts. Add to that 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 e-commerce store in collaboration with survey company Ask Afrika:

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 formal retail chains did not fulfil, thus becoming a pillar of the township economy that enables people to shop at their convenience. For the informal trade to rebuild and grow, it is vital that this aspect of “meeting shoppers’ needs” be sustained and developed.

Trade Intelligence aims to enable collaboration and has identified certain areas within the trade and opportunities where suppliers, services providers and traders can work together to enable development within this largely untapped market:

- 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 respondents switched to cheaper brands and private label products last year. Shoppers say their willingness to change to cheaper brands is driven by satisfaction with the quality and the 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.

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- 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 respondents said that they purchased more fresh produce (fruit and vegetables) last year from their local spaza shops than the year before. Shoppers bought more fresh ginger, lemons, garlic, honey, cinnamon and turmeric – ingredients that 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. For this reason, informal traders have always understood the value of offering airtime/data and ATMs, and being water and electricity pay points.

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 transport costs), but, from early last year, shoppers in general have also 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 and 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 and corporate and informal entities, and regard such partnership as an indispensable part of building not only the informal sector, but also business in our country as a whole. These themes and more will be explored and discussed in the Independent Trade Forum, 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.

Smith is the managing director of Trade Intelligence, SA’s leading source of consumer goods retail research, insights and training solutions


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