Spend trends in retail and consumer categories

Ten years on from the country's democratic birth, the population has increased by 16%. Housing has grown at an even faster rate of 27%, due to a number of factors, including the growth of an emerging black middle class; governmental housing projects; and recent low interest rates. Higher even than the phenomenal housing growth, has been the increase in retailers over this time.

Regionally, South Africa's retail spend continues to be heavily weighted towards Gauteng and Western Cape. Despite only containing 30% of the country's population, these two business hives contribute 54% of the country's spend (GDP). On the other end of the continuum are regions such as Limpopo and KwaZulu Natal, which accounts for far less spend than their population stats warrant.

Another imbalance in the local retail scene exists in store concentration. The organised/modern grocery trade comprises a mere 5% of stores, but account for 70% of the country's grocery turnover. In comparison, smaller counter and self service or traditional stores, bring in considerably less, but of course there are huge numbers of these outlets.

Turnover

While our own retail environment expands and diverges, it is also noteworthy to consider global developments. It is sobering to realise how our retailers stack up in relation to international competitors: Pick 'n Pay and Shoprite groups respectively turn over around $4 billion annually, ranking around position 70 on the ladder. Wal-Mart, in top position, turns over an incredible $285 billion.

A recent global survey indicated the factors that ranked top of mind for retailers and suppliers in 2005. Thatcher notes that for retailers, 'the single most important issue is competition'. For suppliers this came in second, behind the ever vital supplier/retailer relations.

Worldwide, the fastest retail growth is driven through discount store formats. Virtually non-existent 20 years ago, there are now over 33 000 such stores in Western Europe alone, turning over about €98 billion between them. In the US too, the equivalent 'dollar stores' have achieved 60% household penetration, with three new stores opening daily. Trends show heavy declines in small independent stores, as discounters, hypermarkets and large supermarkets seize the market.

Fastest growing sectors

In our local sector, the top three fastest growing industries are liquor; service and health care. Liquor is already the country's largest category, with consumers spending R18 in every R100 on this segment.

Food shows a relatively low growth of 3%. Thatcher explains that despite recent inflation drops, there hasn't been much of a consumer reaction to basket sizes. "People are still spending the same amount of money, but are getting more for it," he says, noting that, "Just because food is cheaper, doesn't mean that consumers will eat more!" Food now comprises a relatively lower percentage of spend, leaving more money available for beverages, perishables and toiletries.

The country's top 10 consumer packaged goods categories in its top 10 stores contribute a high 30% of store turnover. These categories are lead by detergents, chickens and dog/cat food. Of categories worth over R100 million, mineral water is the fastest growing. In fact, six of the top 10 growths category are in cold beverages, "giving industry players a good idea of where their energy should be focussed," proposes Thatcher.

The importance of private label is another international trend with great implications for South Africa. Europe is currently the most advanced region in terms of these products, with 23% of sales going to private label. South Africa still lags behind: In three quarters of local categories, own brands contribute less than 10%. Pot scourers and canned tuna are the furthest ahead, with private label contributing over 50% share in each.

The average price difference between own brands and category averages, is a 20% discount locally. In Europe however, the discrepancy between a basket of branded supermarket goods and their private label equivalents is almost 50%. Such equivalents would typically be purchased at a hard discount store, which, despite not having the range of a supermarket, certainly competes on quality.

Challenges facing retailers

Thatcher concludes with some challenges facing retailers and manufacturers today. Retailers of course need to adapt to the nation's changing consumer face, focusing on opportunities such as effective township penetration. Simultaneously, they need to be aware of increasing consumer sophistication; and potential threats from international retailers, even if these are still a few years away. A major opportunity facing retailers is that of own brands, which pose an effective way of differentiating themselves.

Manufacturers are constantly faced with the need to improve brand attractiveness, marketing mix and innovation strategies. Additionally, they must now be aware of the current basket evolution, brought about by increased number of households, and electricity availability. Threats such as private label growth must also be addressed. Like retailers, manufacturers are encouraged to take note of current global trends, in light of South Africa's current context, to ensure a prosperous future within the local market.