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More than 20% of consumer spend sits in informal retail channels, an opportunity largely unnoticed by brands due to the complex landscape, wide spatial distribution and route-to-market distribution complexities.
Image credit: 5M2T
5M2T has launched and successfully piloted an innovative route to market distribution network that embraces the complexity of informal retail, in response to the widening gap in the market and the continued trend, across wide income levels, of consumers opting to shop local at their nearest spaza outlet.
Named after the street slang term, ‘5 minutes to town’, which pays homage to the savvy guys who know how to get things done fast, 5M2T has been successfully distributing FMCG, tobacco and OTC pharma brands to spaza outlets across the country for the last eight months.
“We have been honing our methods,” says 5M2T director, Stuart Smith. “We now visit over 60,000 geo-located spaza outlets per month, in all major provinces that are serviced daily by our trained staff.”
5M2T says it has succeeded where more formalised distribution networks have previously failed, given their on-the-ground understanding of the complexity of the informal market and their ability to service spaza owners on their terms – smaller quantities stocked more frequently.
“The lack of infrastructure, storage space and the reluctance to keep stock on site, due to the increased threat of crime has created a channel that requires high-touch, frequent stocking. Expecting a spaza owner to buy once a month, to take advantage of a relatively nominal bulk-pricing benefit, is not realistic. These outlets want to see stock moving off their shelf every day and want to be acknowledged for the important role they play in taking brands to customers. In short, it is time that brands recognise these channels and realise their importance in contributing to future growth, especially in the very tightly fought FMCG space.”
New approach to distribution, marketing
Succeeding in the informal retail space requires a different approach to distribution and even marketing.
“On-trade marketing activities in major distribution centres can often prove to be a very ineffective method of getting your product stocked in spaza outlets, especially in the case of new brands or SKUs. In most instances, the spaza owner is not the shopper, sending runners instead, so that he or she can maintain trading in-store.
“The runners are given a very prescriptive list of brands and products that the spaza owner knows move off-shelf. The runner is not authorised to divert from that list, so no amount of in-trade promotion will ensure your stock flows through to spaza level.
“Instead, we take product direct to the hands of the spaza owner, engaging with him or her and not only providing a distribution opportunity, but an educational one too. We are also equipped to deliver and install the basic point of sale and other supporting marketing material that spaza owners appreciate.”
Mobile app launched
Recently, the team at 5M2T have developed a mobile-based application to provide accurate and extensive reporting on sales throughout the informal retail sector. This has also been supplemented with an additional capability to provide market research monthly, quarterly or yearly across the more than 60,000 spaza visits done each month, as well as neighbouring businesses such as salons, kota establishments and barbers.
“Market research in this sector has always been based on small sample sizes that are extrapolated without understanding the spatial distribution, neighbourhood market sizes and varying degrees of formalisation that exist within this sector. The same staff that are visiting and stocking spazas daily, service our research platform. Therefore, we are able to turn around valuable data and insights in a matter of days, and this data is based on significant sample sizes that more accurately reflect the depth and breadth of penetration, the extent of parallel imports and the consumer purchasing behaviour across all products that make their way to consumers via this channel.”
Adcorp economist Loane Sharp estimates South Africa’s informal economy at 18% of GDP, with others reporting this figure to be as great as 28%. The informal sector is also outgrowing the formal retail sector, making it a valued distribution channel to recognise growth in a relatively stagnant retail market. Nielsen pegs the annual spend through spaza outlets at R46 billion or 1 in every R5 spent and one-third of all consumer packaged goods sold in the country.
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