Posted by With over 150,000 informal retailers or spazas across South Africa, located close to people’s homes, spazas are an integral part of the community. Spaza shops typically sell items like snacks, beverages, and other basic necessities. Over time, some have expanded to offer services like mobile airtime and electricity.
According to research conducted by Accenture, the informal sector is visited by almost 80% of the population and accounts for 30%-40% of the total food spending in the country per year. Trade Intelligence estimates its potential market value at R178bn, representing a significant opportunity for businesses.
Spaza shops in South Africa typically buy their goods from various suppliers and distributors. The specific sources they purchase from can vary depending on the size of the spaza shop, its location, and the products it sells. This could include wholesale distributors, cash-and-carry traders, manufacturers, and even big retail chains when they offer discounts or special deals.
Below are some of the challenges spazas face:
- Competition from large retailers: Spaza shops often have to compete with larger retail chains and supermarkets, such as Shoprite’s uSave, which are increasingly opening stores and can offer a wider range of products and better pricing due to their economies of scale.
- Limited buying power: Spaza shops lack buying power and don’t always get the best deal and volume discounts. The result is that goods are more expensive, leaving the shop to rely on convenience as its primary transaction driver.
- Hard-to-reach places with limited volume: Shops are usually based in townships, some with no roads, street addresses, or geolocation codes, making it difficult to determine their location and service them effectively.
- Security concerns: Spaza shops, especially those in high-crime areas, may face security challenges such as theft, burglaries, robberies, and xenophobic attacks, which can impact their operations and safety.
- Stock management and inventory control: With limited cash flow, maintaining a balanced inventory and managing stock levels can be challenging for spaza shop owners, leading to stockouts or excess inventory that ties up capital.
- Limited access to capital: Financial institutions don’t typically work with small retailers, as they mostly trade in cash and have no financial footprint to determine their creditworthiness. Assigning credit scores is difficult, and extending loans is risky.
- Price fluctuations and supplier issues: Fluctuating prices of goods and inconsistent supplies from suppliers can disrupt the availability of products and impact the shop’s revenue.
Accenture recently highlighted five trends in informal retail in South Africa:
- Increased competition: The informal sector is experiencing significant growth and competition from various players, including banks, telecommunications companies, retailers, and FMCG suppliers. Fintech companies, like Yoco and iKhoka, are emerging as key contenders, providing safe and convenient payment solutions through easy-to-setup point-of-sale devices operated via cellphones with built-in 4G cards.
- Ecommerce momentum: Despite a high smartphone adoption rate among traders, a majority (90%) have not engaged in online shopping before. However, ecommerce is gaining traction in the informal sector with platforms like Yebofresh connecting township entrepreneurs with high-quality goods and services. These platforms enable traders to order, pay, and arrange returns, with added benefits like 24-hour delivery and buy-now-pay-later options.
- Collaborative ecosystem: Spaza shops are transforming into more than just grocery stores by participating in a collaborative ecosystem involving partners from aligned industries. Shoppers can access products and services through mobile phone operators and fintech solutions, utilizing both digital and in-person channels.
- Cash remains prominent: Many informal sector participants still prefer cash transactions due to reservations about traditional banking services, citing high transaction costs, inadequate protection against scams, and slow money clearance.
- Stock management: A significant number do not maintain formal stock records and buy stock “as and when needed” based on customer demand and sales patterns, often planning around peak days like Fridays, Saturdays, and Sundays.
The opportunity
According to Accenture’s research, a significant portion (58%) of the sample turnover in the informal sector falls within the range of R5,000 – R20,000 per month, which exceeds the minimum wage and makes a noteworthy contribution to South Africa’s GDP. The informal sector is largely driven by consumer demand, and traders plan their stock based on what shoppers request. While profitability is a consideration, affordability for customers takes precedence over higher margins.
Retailers can enter the informal market by leveraging their buying power for cost-effective products and using existing infrastructure like Click & Collect points and fulfillment centers. This improves supply chain efficiency, a key need for the informal sector, allowing them to capture a share of the R178 billion market.
Traders benefit from fresher products, bulk discounts, and convenient delivery. Consumers gain access to affordable products with a wider assortment at convenient locations.
The Supply Chain Lab 