South Africa's fast-moving consumer goods (FMCG) retail sector is in survival mode: global growth continues to slow and artificial intelligence (AI) is redefining how industries operate at breakneck speed, and at home, consumers are under unprecedented financial strain.

Together, these forces are creating a retail environment that is as unforgiving as it is dynamic. This was the picture outlined by Kerry Elliot, Client Success Lead at Trade Intelligence, and Paul Steegers, Senior Retail Research Analyst at Nedbank Corporate and Investment Banking, at a Nedbank-commissioned FMCG research briefing.

A tough consumer climate

South Africa's real GDP is forecast to expand by just 1.1% in 2025, while the consumer price index is expected to average 3.3%. Since 2019, the cost of a food basket for 1 household has increased by an average of 46.4% year to date, and food and non-alcoholic beverages are expected to increase by 4.6% in 2025. Elliot said: 'This sustained squeeze is forcing many households into debt, and 1 in 10 shoppers now take out personal loans to afford food. Notably, this trend is visible across all income brackets, not only in the lower end.

According to Steegers, while consumers remain under pressure in general, the biggest fall in consumer confidence from the second quarter to the third quarter of 2025 was in the higher-middle income group. Consumers are looking for value, seen in the superior growth at discount retailers such as Pepkor, Shoprite and Boxer and perhaps aided by social grants, which on average have grown faster than inflation for the past 14 years.

New stores, not new spend

Retailers are not waiting for the economy to turn around. Instead, they are building their way out of stagnation by relying on new store openings for growth while diversifying into adjacent goods categories such as health, pets and baby products.

Corporates like Shoprite, Boxer and Massmart are expanding into what typically used to be the 'independent' space by having stores in townships and offering bulk deals to traders. In this independent space, around 92% of wholesalers now operate as hybrid stores, blurring the lines between wholesale and retail. Meanwhile, the informal market is becoming formalised by virtue of the increasing size of 'midi' wholesalers – informal or semi-formal wholesalers that straddle large-scale wholesalers and small retailers like spaza shops.

Building an empire: Global and local strategies

Locally and internationally, retailers are diversifying into adjacent businesses. One fast-growing area is retail media, with 77% of global brands already investing in Amazon's platform. Subscription models like Takealot MORE are gaining traction because of the guaranteed revenue they bring, while private brands on the other hand continue to strengthen margins and consumer loyalty. Elliot said that retailers are also pursuing expansion strategies that are designed for the South African context, mentioning that 'Shoprite, for example, is pursuing a multipronged strategy: expanding into non-grocery categories, scaling store openings, expanding Sixty60 into informal markets, enabling online hyper product delivery, and launching a free e-commerce cash-and-carry platform for traders.'

Discount retailers on the rise

Discount retailers have grown at a compound annual growth rate (CAGR) of 11.6% over the past 5 years. This growth, ahead of total retail, mirrors the global growth of discounters somewhat. Elliot and Steegers agree that Pick n Pay's Boxer is a star performer, with real growth at about 5.4%, compared to Shoprite Group's real growth, which was approximately 2.5% – though off a much smaller base. Looking ahead, Shoprite Usave plans to have 1 000 stores by the end of 2035, while Boxer plans a further 200 outlets by the end of 2026.

Beauty and pharmacy are where growth is – but competition is stiff

Steegers said that beauty and pharmacy are among the categories that offer the best growth opportunities. 'They far outstrip the rest of the retail categories in terms of growth. And with Dis-Chem and Clicks each holding 24% market share and Shoprite 3–4%, while the rest is held by independents, it's clear that huge potential exists here.'

Elliot agrees, adding that the opportunity has not gone unnoticed by non-traditional FMCG retailers: 'While our research shows that 43% of respondents buy their toiletries from Shoprite, 85% of online beauty shoppers buy from Takealot. And other retailers like Amazon, Shein and Temu are in hot pursuit of a slice of this pie.'

E-commerce, ESG and AI: A means for competitive advantage

Although still a small share at 3% of FMCG sales, e-commerce is scaling fast, driven by innovations like Sixty60, which has grown 40% since launch. ESG, on the other hand, has slipped down the consumer agenda. Elliot said: 'Only 30% of shoppers are willing to pay more for environmentally friendly products because budget and value are paramount. Yet niche opportunities remain, like Woolworths' Good Business Journey; ESG can be a value driver and social enabler that powers both affordability and sustainability in the South African context.'

AI has moved from hype to hard advantage, transitioning from traditional to generative AI, and now through to agentic AI. Its applications are almost limitless, and retailers that harness AI strategically will not just cut costs – they could create entirely new models of shopper engagement.

The road ahead

Karen Keylock, National Retail Manager for Retail Services at Nedbank Commercial Banking, said the research was commissioned to uncover the key drivers of the FMCG sector, enabling Nedbank to better support its clients and the broader industry. 'At Nedbank, we believe our role goes beyond offering best-of-breed financial products in the market, to providing access to up-to-the-minute insights like those shared by Kerry and Paul.'

The South African FMCG retail environment may be tough, but it is far from stagnant. Tough environments can create opportunity for some of the boldest strategies. Market forces and trends are reshaping the retail sector, forcing retailers to rethink how they grow and how they compete. And the winners will be those who listen to and respond to a consumer who is buying less but expecting more.

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