South African retailers were upbeat about the future prospects of the industry, despite being squeezed and passing on rising costs to consumers, a retail expert said.

Hit by slowing growth in South Africa, most retailers have expanded further into Africa where competition is considered manageable and returns are high.

Severe challenges

“The weakening rand, severe drought, electricity and petrol costs, and rising interest rates are posing severe challenges for South African grocery retailers, who are struggling to limit the impact on consumers,” Jon Wright, Europe, Middle East and Africa region manager for UK-based research organisation IGD, said.

“Over the long term, however, both retailers and suppliers are upbeat about the industry’s growth prospects.”

Shoprite mentioned in its half-year results recently that its internal inflation rate had halved in a year to 2.2 percent, while Massmart said it had managed to keep “product inflation” to 3 percent compared with the core inflation rate.

The IGD said moving in to compete with restaurants was another survival measure that could help struggling retailers.

“Food Lover’s Market opened the Food Lover’s Eatery format in late 2015 in Cape Town, with the store strongly expanding its range of meal options. Woolworths has been driving a similar strategy, with its stand-alone stores adding cafes that provide a variety of meal choices for key times of the day,” Wright said.

The IGD said as much as 40 percent of grocery retail sales were transacted “through traditional channels”, despite expansions and the launch of new formats.

Modernisation and new formats would “provide a source of growth for modern retailers who were able to convert shoppers, but this isn’t guaranteed”.

It said retailers had to play catch up to the booming usage of online platforms as South Africa had one of the higher internet penetration rates in sub-Saharan Africa, with about half of the population having access to the internet.

Online retailing

“Both Pick n Pay and Woolworths are building their scale for online grocery solutions, growing awareness among shoppers,” IGD said.

However, spending on grocery ranges would probably remain only a small part of online retailing in the medium term, but the channel would provide competition for retailers in key urban centres and in non-grocery categories.

“As online grows, retailers will have to showcase their differentiated offers to help them stand out,” it said.