5 ways for retailers to grow in tough times
The weak rand, severe drought, high electricity and petrol costs and rising interest rates are challenging South African grocery retailers, who are struggling to limit the impact on consumers.
However, in the long term both retailers and suppliers are upbeat about the industry’s growth prospects, says Jon Wright, Europe, Middle East and Africa manager of IGD, a UK-based research organisation and member of The Consumer Goods Forum.
Wright says there are five key developments that could help grocery retailers in South Africa grow in a challenging economic environment and highly competitive market:
Winning by supporting shoppers: The short-term focus for retailers should be to deliver value to shoppers. “Retailers are trying to minimise the pain for shoppers by not passing on the full extent of inflationary pressures. Shoprite, in its half-year results, noted that its internal inflation had halved in a year to 2,2%, and Massmart has indicated it has kept product inflation to 3% compared to the core South African inflation of 6%.”
Retailers can compete with restaurants with food-to-go: In the medium term, supermarkets are expected to compete increasingly with restaurants, and in the short term, retailers will evolve their food-for-now and food-for-later options. “Food Lover’s Market opened the Food Lover’s Eatery in late 2015 in Cape Town, with the store strongly expanding its range of meals. Woolworths has been driving a similar strategy, with its standalone stores adding cafes that provide a variety of meal choices for key times of the day,” says Wright.
Strategies to target individuals and shopper missions: Retailers in South Africa are either developing smaller-format stores, moving away from their core supermarket formats, or empowering store owners to better target local shoppers. Food Lover’s Market and Pick n Pay are trialling new formats to target top-up or food-for-now solutions, while SPAR is enabling its store owners to adapt their offers to target “their” shoppers.
Benefiting from industry’s modernisation: Despite supermarkets’ expanding and the launch of new formats, about 40% of grocery retail sales occur through traditional channels in South Africa. “This will provide an opportunity for growth for modern retailers who are able to convert shoppers, but this isn’t guaranteed.”
Online to support growth in the longer term: South Africa has one of the higher internet-penetration rates in sub-Saharan Africa – around half of the population has internet access. “Both Pick n Pay and Woolworths are building their scale for online grocery shopping, growing awareness among shoppers. While spending on grocery ranges is likely to remain only a small part of online retailing in the medium term, the channel will 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.”
The local and global challenges and opportunities impacting retailers will be cast under the spotlight at this year’s Consumer Goods Forum Global Summit to be held at the Cape Town International Convention Centre from 15 to 17 June 2016. Scores of CEOs of both global and local retail businesses and suppliers will be at the event – the first of its kind on the African continent – to debate issues such as sustainability, food safety and security, and global environmental practices.
It is expected to draw more than 800 delegates from over 365 companies in 40 countries. The co-chair of The Consumer Goods Forum and chairman of Pick n Pay Stores, Gareth Ackerman, will host the CEOs from the world’s most influential consumer and retail brands, such as Alibaba, Facebook, Walmart, Sainsbury’s, Nestle, McCain and Pepsico, at the prestigious event.