Strapped: As the cost of living rises more low- and middle-income people are shopping locally. Photo: Sharon Seretlo/Gallo Images
Low- to middle-income earners contribute about 40% to total expenditure in the country and major corporations are increasingly interested in this market even as consumers tighten their belts.
Overall South African consumer behaviour has shifted as salaries weaken in the face of a struggling economy and a soaring cost of living, with households spending most of their money on priorities and shedding what they consider to be non-essentials.
The past five years have been the worst for nominal compensation growth, with take-home pay not keeping pace with inflation, growing 22.8% from February 2018 to February 2023. This is compared with the 26.6% increase in the consumer price index over that period, according to BankServAfrica.
General trade households — those in the low- to middle-income segment — remain a critical target for food and beverage company Tiger Brands as the largest and fastest-growing community, said its chief customer officer, Luigi Ferrini.
In addition, consumers’ behaviour has shifted significantly over recent years, with many seeking increased convenience and better value, Ferrini said. This has led to many of them opting to do their shopping locally, in the township.
“Because of the informal trader’s in-depth understanding of their consumer base, they are well placed to service the consumer’s needs,” he said.
“Available statistics [Trade Intelligence, 2022] indicate that at least 70% of all consumers shop within the informal sector and visit outlets an average of four times a week compared to larger modern retail outlets, which consumers visit once a week on average.
“In addition to this, the informal market is growing at a faster rate than modern markets. As a business, if we want to grow strategically, this is the market in which we need to invest, without question.”
At the beginning of the month Tiger Brands said it was expanding its presence in local general trade to capture significant growth opportunities identified in the informal sector, by implementing robust route-to-market support and solutions for its general trade customers, including spazas and midi-wholesalers.
The business’s growth objective is to expand its reach and support about 130 000 general trade stores over the next five years. To date, Tiger Brands has reached more than 46 500 general trade outlets with a target of 50 000 by the end of the year.
The company said that as it looks to build brand awareness among consumers in the informal sector and boost the sale of its products, select general trade stores and walls are being branded with mural stories of some of its recognised brands such as Golden Cloud cake flour, ACE maize meal and Oros fruit juice.
“The South African informal sector is a yet-untapped market with significant growth opportunities for Tiger Brands,” Ferrini said.
“According to Trade Intelligence, informal and independent traders, such as spazas, contribute 26% or R184 billion of the total R716 billion SA FMCG [fast-moving consumer goods] market. It makes up 6% of GDP and employs one-third of the country’s workforce.
“In growing our presence within this sector, through robust route-to-market support and solutions for general trade customers including spazas and midi-wholesalers, Tiger Brands expects to increase its consumer basket in these outlets and the distribution of its products.”
Ferrini said the business had achieved significant growth in this market. For example, in Tembisa, in Gauteng’s East Rand, Tiger Brands’ consumer basket has increased by 185.7%, and its product availability has risen from 28.5% in 2020 to 97.3% currently.
Product availability is a retailer’s ability to meet customer demand for an item at a given time.
“By implementing some of our route-to-market solutions — a mobile cashless and order platform, trader loyalty rewards, offering pack sizes, product bundles and better price/pack architecture that meet shopper needs — we can reduce cost within the supply chain, which benefits the trader who is able to make a better margin and in turn offers more affordability for the consumer,” Ferrini said.
Tiger Brands isn’t the only company trying to capture this growing segment during these trying times.
According to digital marketing agency Rogerwilco’s Township CX Report for 2023, 24.35% of South Africa’s population lives in townships. This is equivalent to 11.6 million people and a number of companies are trying to get into this relatively untapped market.
More than 1 000 individuals living in townships across South Africa were polled for the report and 60% of the respondents said they or someone they know had sold products and services online, or had begun working online.
(Graphic: John McCann/M&G)
There is a desire for local brands and investment in them, which can also be seen in the rise of township-based delivery services, according to the report.
Delivery giants such as Uber Eats, Checkers Sixty60 and Mr D are top of mind in townships.
Uber Eats said it is making a R200 million investment over three years to empower young people in township economies. Through a strategic partnership with the Gauteng department of economic development, the initiative aims to create earning opportunities for merchants and delivery people in townships by leveraging technology.
The initiative is targeting 2 000 delivery people and 700 restaurants to sign up to the Uber Eats platform. The R200 million investment is an ongoing effort which will go towards hardware, training, campaigns and account support, Uber said.
“Over the years, we have accumulated invaluable insights into the preferences and needs of the individuals, families and communities we serve with our products and services,” said Nakampe Molewa, the general manager at Uber Eats for sub-Saharan Africa.
“These insights have shown us that residents in townships are seeking greater convenience across various price points.”
When the Uber Eats app launched, it was predominantly a food delivery app, Molewa said. During that time, there was a shift towards e-commerce, which has accelerated since the Covid-19 pandemic and the lockdowns it triggered. On-demand delivery is no longer just a fad, but a need for businesses and consumers.
‘We have a strong belief in the success of this initiative, as it is expected to not only maintain the integrity of supply chains but also enhance them,” Molewa said of the R200 million investment.
“Consumer spending and budgets vary for different communities and merchants — the township retail economy is able to match consumer preferences in areas they serve and beyond.
“Our vision is to stimulate the township economy for retail, manufacturing and delivery entrepreneurship by digitising the township economy in a manner that is accessible for all.
“So far, we have already onboarded 100 restaurants and 50 delivery people in the township,” Molewa added.