Big international brand wants to be in Spaza shops

The Beverage Company (BevCo) is targeting spaza shops in a venture to expand further into the country’s large informal market.

BevCo distributes PepsiCo products, including Pepsi, Mountain Dew, Mirinda, and 7-Up, and produces popular local soft drinks like Reboost, Super C and Jive in South Africa.

The company recently told News24 that it plans to have its brands in 30% of spaza shops within three years.

BevCo has been in South Africa’s informal market for years, primarily via wholesalers, but this latest venture targets stores directly. The company is continuing to work with wholesalers alongside the spaza shops.

Steven Oliver, head of trade marketing at BevCo, told Daily Investor that this strategy ensures the correct range of products is available to these stores’ shoppers and showcases the quality and benefits of BevCo’s brands.

“Obviously, we see it as an opportunity to expand our business incrementally, but the relative affordability of our products will definitely add value to the communities these spaza stores service, and hopefully grow the spaza store’s business too,” Oliver said.

Entering and operating successfully in South Africa’s informal economy is a difficult task, as many of the businesses are unregistered and often lack the technology and infrastructure of formal businesses.

This is why many larger companies opt to work with wholesalers that supply informal businesses rather than directly target the shops.

However, for those brave enough to try, the country’s informal market can be a goldmine of opportunities.

South Africa’s informal economy is booming – and has been for years – with the sector compounding at an average annual rate of 6.7%. This far exceeds that of the country’s stagnant formal economy. 

This economy has long been pivotal in meeting the needs of ordinary South Africans who rely on cheap goods and services that are easy to access in townships and rural areas. 

It absorbs South Africa’s large unemployed population, providing many with additional income and a basic livelihood. 

Some estimates suggest that more than 70% of South African households rely on the informal retail market for their everyday needs.

The informal economy is dominated by spaza shops, which largely mimic the formal retail sector and are estimated to be worth around R180 billion annually.

This forms the backbone of the wider informal economy, estimated to be valued at close to R900 billion. 

The sheer scale of this market has attracted several large retailers, who are all looking to tap into the sector’s potential value.

However, this is easier said than done, and retail giants that dominate the formal economy have faltered.

For example, despite its dominance in the formal retail market, Shoprite initially struggled to establish a strong presence in the informal market. 

Its larger store formats and higher prices made it difficult to compete with smaller, more nimble informal retailers like spaza shops.

However, Shoprite shifted its strategy and tried again – this time, with far more success.

Shoprite recently announced its plans to double the number of Usave stores it has in the next five years to tap into the strong growth of the informal economy in South Africa. 

The retailer operates under different brands, store formats, and market segments in various regions.

Shoprite and Usave meet the needs of the company’s core customer base in lower-income segments. In the most recent financial year, these two brands generated sales worth R90 billion, up 10.7%. 

Usave, in particular, has shown strong growth as South Africans hunt for value, growing sales by 13.2% – the fastest-growing supermarket brand in Shoprite’s stable. 

The brand was first launched in 2001 as a way to tap into the burgeoning informal economy. Its primary focus was on townships and ‘forgotten’ towns outside of major metros. 

This strategy has paid off as these small format stores currently dominate township retail. The company now has 463 Usave stores across South Africa, opening 22 more in the past year. 

Shoprite’s success served as proof that the informal market is not impenetrable and spurred many others to try their hand as well.

BevCo told Daily Investor that the single biggest challenge to entering the informal market is undoubtedly the vast number of stores. 

“Nobody has exact data, but most research articles estimate there to be around 150,000 spaza stores in South Africa,” Oliver said. 

“We realise we can’t reach all of them overnight, but we already have a significant salesforce in this channel, which we will continue to build over time to reach more and more of the stores.” 

“I’m sure we will face more challenges as we progress, but I believe we are agile and flexible enough to deal with them deftly.”

He explained that the company’s strategy from the outset was simple: ensure the spaza stores receive the right products so they can sell at the right price and give them some tools to help build BevCo’s brands with their shoppers. 

“We have only been fully operational with this specific program for two months now, and it’s going well so far, so our strategy has not changed,” he said.