Some of the challenges facing retail and consumer products companies include limited volume growth‚ increasing costs and falling prices.
According to PwC's "South African retail and consumer products outlook: 2012-2016"‚ after a strong recovery since the financial recession of 2009 with retail sales surpassing a trillion rand for the first time in history in 2011‚ the industry is slowing significantly.
Volume growth for this year is expected to be just 0.7%‚ down from 3.9% in 2011.
"As pressures on consumers' wallets increase‚ retail sales by value are expected to slow this year. The economic outlook going forward is expected to be modest‚" John Wilkinson‚ PwC Retail & Consumer Leader in SA said.
The strain is expected to filter through to food sales in general‚ with sales forecast to edge up to R576.7bn in 2012‚ from R542.3bn last year.
Sales are projected to accelerate again from 2013‚ rising to R787.6bn by 2016.
Non-food sales will also slow this year‚ with R485.8bn expected in 2012‚ up from R459.6bn in 2011.
At an aggregate level‚ retail sales volumes are forecast to expand by 3.45% over the period 2013-2016‚ PwC said.
"Any new growth in the retail sector will be largely driven by the country's steadily expanding black middle class. By 2016‚ some 11 million households are expected to have an annual income above R89 500 - a level that gives them discretionary spending for a wider range of consumer goods‚ as in other emerging markets‚" it added.
Interestingly‚ for those on the upper end of the scale‚ there is a significant drive to increase spending‚ particularly for status purchases such as of high-end motor vehicles and premium alcohols.
For the large‚ lower-end pool of consumers‚ two key government initiatives - large-scale infrastructure investments across the country and wide-ranging social grants are in turn helping to support demand.
One of the downside pressures facing the sector is SA's growth rate‚ which remain fragile - Gross Domestic Product (GDP) is expected to expand by 2.8% in real terms this year‚ down from 3.1% last year.
This is far below the rate required to make a significant effect on unemployment rates‚ and more on a par with more mature economies‚ states the report.
And while in part this is shaped by the global economy and the eurozone crisis‚ local issues such as policy uncertainties over labour brokering and temporary workers are also constraining growth.
Furthermore‚ electricity prices are also increasing materially‚ along with ongoing wage increases‚ fuel costs remain persistently high and retail occupancy costs are being pushed upwards.
"A further pressure is the persistent skills shortage‚ particularly among middle management‚" PwC noted.
Encouragingly‚ from a growth perspective‚ retailers are focusing on expansion into new areas‚ converting informal trade into formal retail‚ growth into the rest of Africa‚ diversifying into new service lines and boosting operational efficiencies.
Every major retailer and consumer goods company has started to expand into the rest of Africa‚ along with ongoing efforts at home to expand retail space.
The move is being led by domestic food retail giant Shoprite‚ which already has stores in 17 countries.
Upmarket player Woolworths already has operations in several African countries‚ and fashion group Mr Price recently opened its first store in Ghana.
Pepkor‚ the owner of Pep is in the midst of a R100m expansion into Nigeria‚ with plans to open 50 outlets.
According to Wilkinson most brands are treating the Africa aspect of their growth cautiously‚ given the significant risks that remain‚ such as the paucity of infrastructure in many areas‚ red tape and high tariffs.
"Indirect taxes are also a pressure point‚ particularly when importing transit through countries. Given the significant risks that remain on the African continent‚ most major retailers and consumer goods companies have adopted a strategy of organic expansion. Many are operating in tandem with property developers‚ opening up in parallel with new shopping mall developments and complexes‚" he said.
According to PwC's report‚ the demand for food‚ beverages and tobacco was an estimated R491.5bn in SA in 2011. This is forecast to grow by an average of 11.5% in nominal terms‚ over the 2012-16 period‚ reaching a total value of R847bn in 2016.
Diederik Fouche‚ PwC Consumer and Industrial Products and Services Industry Leader in Southern Africa said that for consumer goods companies‚ as with retailers‚ the primary constraint to further development is the country's pressing unemployment problem.
Fouche added that the long-term success of the retail and consumer goods industry will depend on a continued focus on the consumer‚ efficient supply chains and a low cost of doing business.
"Companies that differentiate their products and provide a compelling reason for customers to buy from them will survive. Those that don't will face an onslaught from their competitors. In difficult times like these‚ companies need to re-examine their cost structures‚ operational effectiveness and efficiency‚" he said.
PwC's survey was written in cooperation with the Economist Intelligence Unit's industry and management research division.
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