Why South Africa is more than a 'springboard'

Date : 09 December 2011
Why South Africa is more than a 'springboard'

For some time now, South Africa has been described as a ‘springboard’ for modern retailing in Africa. So with this mind, we look at what makes it one of the most exciting emerging grocery markets in the world right now.

To begin with, here are a few facts on the South African market.

  1. South Africa has a population of 51 million. Living Standard Measures, or LSM profiles as they’re more commonly referred to, are used to segment the population, being scored from one (least affluent) to ten (most affluent)
  2. The South African grocery retail market is worth USD46.2.4bn* in 2012. It is the third largest market in Africa behind Egypt and Nigeria, and 31st globally
  3. The market, like most emerging nations, is split between modern and traditional retailing. Modern retailing accounts for c.60% of total grocery spend according to local sources
  4. Traditional outlets come in all shapes and sizes, and consist of spaza outlets, flea markets, hawkers and shebeen. Spazas are the most common however - effectively, they are the local equivalent of a ‘Mom & Pop’ store
  5. Shoprite remains the largest food and grocery retailer in the region, specialising in a range of grocery formats which cater for the different LSM segments

So what are the key observations from our trip?

Modern retailing is highly impressive

South Africa has several strong operators and a variety of store formats, from both domestic and international retailers, all of which have their own strengths and unique positioning in the market.

fruit and vegLeading the way are Shoprite and Pick n Pay, two businesses which have so far redefined the way South Africans go about their food and grocery shopping, and will continue to do so in the future. We have visited Pick n Pay on Nicol, which demonstrates the company's vision for the future of  modern retailing - it was one of the best stores seen by our analysts anywhere in the world in 2011. Pick n Pay expects to model other new stores along the same lines.

Family-owned Fruit & Veg City is another outstanding operator, specialising in selling the best quality produce available, at a low price but in an exciting and inspirational environment. Its ‘Food Lover’s Market’ concept, in particular, is strongly reminiscent of Whole Foods Market, Wegmans and Stew Leonard’s in the US.

Attractive market for overseas retailers

As well as the domestic retailers, overseas investors continue to prosper in South Africa. One of the first to enter was SPAR International, a business which now has over 860 stores up and running, including the 'KwikSPAR' format, which aims to help SPAR capitalise on the strong growth forecast for the convenience sector.

walmart gameWalmart also entered the market after acquiring a 51% stake in local operator Massmart. Integrating Massmart into the rest of the Walmart business remains top priority for the group.  Since the acquisition, the parties have embarked on a number of price cutting campaigns which actively communicate the group's intention to help customers save money.

Massmart fits well with Walmart's existing business, particularly its different cash and carry and ‘Game’ general merchandise concepts. Walmart is likely to have a notable impact on in-store and supply chain efficiencies in South Africa, especially since current operations in the market tend to be  relatively decentralised and Retail Ready Packaging is still in its infancy.

Cash and carry... but with a twist

Despite the rapid rollout of modern retailing outlets in South Africa, the wholesale/cash and carry sector is still incredibly important, and it remains an attractive route to market for many manufacturers and retailers.

A major catalyst for this is the positioning of cash and carry outlets in South Africa, with stores in this part of the market catering for both the professional trade and everyday shoppers, with no membership fee charged to customers wishing to shop.

Metro, the cash and carry division of Metcash South Africa, is at the heart of developments here. Its hybrid concept ‘Metro Hyper’ targets inner-city locations instead of out-of-town areas. As a result, the product range is more diverse than that seen in other global cash and carry stores.

Private label gaining momentum

Private labelAlthough private label penetration in South Africa is lower than in mature Western markets, range extension is taking shape fast.  Pick n Pay has a premium tier of private label products, called PnP Finest, which were the first introduced in the South African market and there are likely to be further developments in the future.

Many of the brands seem to take their inspiration from other more established markets and retailers are becoming increasingly open to bringing in elements of different brands previously launched in markets like western Europe.

The importance of effective category management has therefore grown as a result, and it is likely to continue to do so as new products come into the market and retailers aim to grow their share of the category through private label products.


Although South Africa is described as being an ‘emerging’ or ‘developing’ market, the state of modern retailing is more aligned to what you would find in the developed world. As a result, South Africa should not only be seen as a springboard for the rest of sub-Saharan Africa, but also a beacon of best practice for the rest of the world, especially given the breadth of formats on offer and the level of innovation in the market.

* Source: IGD Retail Analysis Datacentre, 2012