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

Strong growth in South Africa’s informal grocery retail market, valued at around R403 billion, presents a risk to the country’s large formal retailers.

While both formal and informal retailers fulfill important roles, formal retailers are increasingly looking to penetrate the informal sector and target lower-income consumers.

This has led to heightened competition, with both formal and informal retailers holding distinct advantages that attract customers.

Camissa Asset Management associate analyst Katlego Dinake estimated that South Africa’s informal grocery retail market is expected to grow from R403 billion in 2024 to R494 billion by 2027.

Major South African retailer SPAR recently highlighted format disruption due, in part, to informal retail growth as one of the company’s main challenges.

In an interview with Daily Investor following the release of SPAR’s 2025 annual results, CEO Angelo Swartz explained that the informal market is an area of food retail that has grown robustly for some time.

“It’s been a challenge in the short term. It has taken some money out of the baskets of formal retailers,” he said.

Three of South Africa’s biggest grocery retailers, Shoprite, Pick n Pay and SPAR, have expanded their offerings to target lower-income consumers over the past few years.

Some of these expansions have also included targeting the informal market, which has an estimated economic value of between R750 billion and R1 trillion.

Shoprite’s Usave brand, SPAR’s Savemor, and Pick n Pay’s Boxer are the main formal players in this sector, and all have ambitious plans to grow their share of this market by doubling their established footprint.

For example, SPAR, through its SaveMor brand, targets lower- to mid-income communities, and currently has a footprint of 61 active stores offering “neighbourhood shopping”.

This format allows the retailer to have a scalable footprint in peri-urban & township markets , which present high organic growth potential.

Swartz emphasised that the solution to growing in the informal sector is not to try to formalise the market.

“I think it presents an opportunity for us. I think there are opportunities for formal retailers or, in our case, a wholesaler, to play a role in that market,” he said.

Distinct roles

While informal retailers like spaza shops may appear to be the underdogs in this battle, Sasfin senior equity analyst Alec Abraham told Daily Investor that informal players have distinct advantages over formal players.

He explained that the informal and formal retail markets live “side-by-side”, each playing a distinct role in the South African landscape.

Their relative importance fluctuates through economic cycles and can even depend on the time of the month.

Abraham referred to research by Eighty20, which suggests that many lower income customers choose to shop in the formal sector.

However, by mid-month, when funds are low, they switch to the informal sector, where they can often buy “what they need”. This is where the informal sector fulfills a key function that the formal sector cannot necessarily achieve.

Informal retailers can offer a unique service referred to as “break-bulk” sales, which allows customers to purchase individual items, such as two or three nappies, even if they do not have the funds to buy a full bag. 

“I would also argue that during difficult economic conditions, that ‘mid-month’ fund slump may be coming earlier, pushing customers to the informal sector,” Abraham said. 

Another competitive advantage he identified for the informal sector is location. Abraham pointed out that lower-income customers rely on public transport, which adds a cost to shopping and influences how much one can buy and transport. 

“Spaza stores in townships are closer to home and negate the need to spend on taxi fares to travel to a formal store,” he explained.

However, he noted that this advantage is also wearing thinner as formal retailers expand their reach closer to taxi ranks or even within townships with small-store formats.

This smaller store format has been Shoprite’s focus over the past few years, with the retailer rolling out its Usave eKasi box stores across the country.

These stores are container-sized and require minimal infrastructure to support, making them ideal for rolling out in townships and rural communities.

This enables Shoprite to expand its presence in the informal market relatively easily and in a capital-light way that allows for rapid expansion.