"The truth is that share of basket is increasing for these stores, as well as their turnover. Potential to earn and spend is big and they are not always located in township areas," says Sane Mdlalose, associate consultant at Aperio, a business consulting company focused on accelerating growth of FMCG brands in South Africa and Sub-Saharan Africa.
Historically in the late 1990s and early 2000s most of the growth in new stores was driven by the formal retailers in SA, which tended to result in at least ten small independent stores closing.
"However, with the change in ownership in this informal market including local South Africans, other African countries and Eastern (Chinese) entrants, this has resulted in a rebirth of more profitable and sustainable outlets in areas where outlets were performing poorly in the past," she explains.
"Brands should not worry about how many stores these retailers own, but realise they have the cash to spend - they can spend it with you or with your competitor. Brand marketers should define the Main Market by owner type: independent or group; by the consumer/shopper profile it services and the needs it meets with little or no consideration being given to location."
She advises brands to understand these independent owners more deeply and establish a strategy to treat them differently. Because there are so few in comparison to the formal retailer sector, marketers can very easily put together the right sales structure to service them accordingly.
"We are seeing two types of sub channels (customers) in this market: foreign and the younger South African business owner," says Mdlalose. "Both these owners are more educated and astute. The way in which they run their businesses requires a person with more skills to engage with them. As locally run operations move from one generation to another, they are being taken over by younger more educated outlet owners who display better business acumen and have higher profit expectations than their parents did."
Brand loyalty with the foreign-owned channel today is low as they have no historical sense of allegiance - if the numbers don't stack up you are out. They therefore have huge power to drive what the community buys and can change purchasing decisions overnight.
According to Mdlalose, there has also been a steady increase in 'new' brands which foreigners have introduced through an import model: these brands offer them good volumes as well as profit margins. They have also reintroduced a variety of payment terms for consumers. As the payment terms and benefits are normally backed by a portfolio of products which give the outlet more profit, consumers are being exposed to a larger share of less common or new brands. This is resulting in a reduction of the share of wallet of SA's 'leading brands'.
"Even if brands have significant market share they have to treat this market properly or they may very well have a huge problem in the future," she believes.
"While marketers think it will cost too much to have a focused strategy for this market, they must adapt their thinking."
Mladlose provides some tips:
Aperio is a business consulting company focused on accelerating growth of FMCG brands in South Africa and sub-Saharan Africa
Go to: http://aperio.co.za/
SAMRA 2 days
