The hidden R403 billion retail giant coming for Shoprite, Pick n Pay, and SPAR

South Africa’s formal retailers are eyeing significant growth in the country’s informal retail sector, which has grown strongly even as the broader economy stagnated. 

However, as these companies expand into this sector through their discount retail offerings, they have found that competition is stiff. 

Informal retailers and independent wholesalers have become increasingly attractive alternatives for households searching for value due to the elevated cost of living. 

The main formal players in this sector include giants such as Shoprite, through its Usave brand, SPAR’s SaveMor, and Pick n Pay-owned Boxer. 

These retailers have ambitious growth plans for the coming years, with both Usave and Boxer looking to double their footprint to over 1,000 stores each in the next five years. 

SPAR’s SaveMor also aims to double its footprint, albeit from a much lower base of 61 stores in South Africa. It also plans to significantly expand its liquor store network. 

To achieve this growth, these discount retail offerings will have to take market share from informal and independent traders as markets become increasingly saturated, Camissa Asset Management associate analyst Katlego Dinake said. 

In a recent analysis of Boxer’s expansion plans, Dinake outlined the immense challenge the informal and independent retail sector poses to formal competitors. 

While much of the attention is on how Boxer will compete with Shoprite’s Usave, little heed is paid to the giant that is informal retail. 

Standard Bank’s latest Township Informal Economy Report showed that retail traders make up 15% of the R900 billion “hidden economy”.

This excludes separately-defined spaza shops at 2% and cooked food or shesanyama at 6.1% of the informal economy. 

Dinake explained that South Africa’s informal grocery retail market is expected to grow from R403 billion in 2024 to R494 billion by 2027. 

This means it will grow at an annual average growth rate of 7%, far faster than its formal peers and significantly quicker than the broader economy. 

This is precisely what makes it attractive to formal retailers, with traditional retail markets becoming increasingly saturated. 

Informal competitive advantages

The informal sector has numerous advantages over traditional retailers, which may work to undermine the scale, funding, and logistics of South Africa’s retail giants. 

While Shoprite, SPAR, and Boxer have immense operations with sophisticated logistics systems and immense economies of scale, the informal market is highly fragmented. 

Dinake explained that this is where some of its key advantages come from, with traders able to win customers through extreme proximity. 

Informal traders can penetrate deep into townships or informal settlements, offering unmatched convenience for basic goods. 

Often, formal retailers cannot do the same, as their stores require extensive infrastructure to support and substantially larger footprints to operate. 

Shoprite has made strides in this area through its Usave eKasi stores that are small format and require very little infrastructure to support. 

However, informal retailers have another key advantage in that they often have deep community ties that enable them to serve specific needs, Dinake explained. 

Informal traders also offer credit in some cases and employ agile pricing strategies, as they can adapt far quicker than their formal counterparts. 

Additionally, they have the ability to offer ‘break-bulk’ sales that enable consumers to buy smaller quantities instead of a full product, making them particularly appealing to low-income individuals. 

Dinake said these informal and independent retailers have proven resilience in a very difficult operating environment, earning them the respect of customers and formal retailers. 

Research firm Trade Intelligence has pointed out that an increasing number of households are turning to independent retailers and wholesalers as they hunt for value. 

Trade Intelligence data shows that 11% of South African households shop in the sector – the same reach as Clicks, nearly four times Woolworths, and not far off Checkers at 18%.

These retailers are also increasingly evolving into one-stop shops in the form of traditional retailers, making them increasingly appealing to consumers. 

They are extremely agile, having the ability to change formats, pack sizes, or promotions overnight. This is something larger groups cannot do, Trade Intelligence said.