Spaza shops, with an estimated annual revenue of R7 billion, are a significant retail channel in South Africa, according to Euromonitor International’s senior research analyst, Christy Tawii.

Tawii commented on the market research provider’s recently released report, “Africa Rising” Megatrend analysis.

The report focuses on the African retailing environment, among other factors such as the increasing significance of the African market, the diversity of African consumers and opportunities and challenges across key consumer industries in Africa.

Tawii said informal retailing is continually growing, as it is becoming a more prevalent form of business in South Africa.

“Stalls are becoming increasingly substantial and street sellers are growing in number. Many foreigners are bringing in cheap goods and selling them on street corners.”

Tawii added that informal street stalls could pose a threat to small corner cafés and convenience stores as they often sell cheap confectionery and savoury snacks at low unit prices.

“With estimated annual revenues of R7bn, spaza shops are a significant retail channel in South Africa, especially in townships and informal settlements. This stems from the fact that their business structure is established to cater to the buying patterns, rising purchasing power and product preferences of consumers living there,” she said.

Tawii said South Africa continued to experience a challenging economic environment and last year the performance of many retailers mirrored this.

“Many retailers, such as those selling furnishings, apparel and footwear, closed non-performing stores. Despite this trend, retailing continued to perform strongly, attracting new players and experiencing further investment from the leading players in an attempt to increase their margins.”

According to the report, the African retailing market recorded value sales of over $350bn last year where sales were driven by non-grocery retailers such as furniture stores, electronics and appliance, beauty, and apparel outlets which accounted for 44% of retail sales.

Traditional grocery retailers ranked second, generating sales of over $125bn and remain one of the largest channels in many countries across the continent for food and drink purchases.

The report said South Africa is unique among African countries, having a well- developed modern retail penetration at over 70%. In contrast, Nigeria’s retail market continues to be dominated by traditional informal channels such as open-air markets, with modern retail penetration estimated at just 5%.

The report said this contrast between South Africa and Nigeria highlights the retail opportunity in Africa, as many consumers’ purchasing power still remains relatively low as they are under-served, while modern retailing in countries such as Cameroon, Ghana, Ethiopia, Angola and Kenya are also underdeveloped.

In South Africa, supermarkets remain the most popular channel for groceries, largely because of a massive footprint and widespread geographical presence across the country, often associated with major city centres and shopping malls that attract a wider mix of retail outlets, which is an attraction to those seeking more affluent brands.

The report added that several international retailers are seeking to expand their operations in the region, particularly in major regional economic hubs such as South Africa and Nigeria. However, local retailers such as South Africa’s Shoprite Holdings and Pick n Pay stores continue to dominate retail sales.

The report also highlights how spaza shops, kiosks and dukas in high-density residential areas such as townships, informal settlements and rural areas continue to be consumers’ affordable convenience stores and remain an important part of the retailing landscape in African markets.

Shoprite Holdings is the region’s largest food retailer, operating over 2500 stores in more than 15 countries in Africa, supported by a diversified portfolio across multiple distribution channels.

The retailer’s focus on Africa’s growing middle class, particularly in places where its competitors have not yet dared to venture, has helped drive rapid expansion, and the company has continued to diversify its consumer base by launching discounter USave, used as the group’s expansion vehicle into previously under-served communities in the region.