Research from Accenture Africa found that there are over 150,000 spaza shops in South Africa, and the sector could be a goldmine for traditional retailers and fast-moving consumer goods (FMCGs) companies.
Accenture Africa’s Mushambi Mutuma told Moneyweb Now that around 80% of South Africa’s population visits spaza shops daily, representing about 40% of total yearly food spend.
The market size of this sector is estimated to be R178 billion – far larger than the country’s largest retailer, Shoprite’s, R149.55 billion market cap.
“It’s a market that’s not to be missed, no matter whether you’re in the corporate field or the formal independent market,” he said.
Tiger Brands, South Africa’s largest food company, recently announced its intentions to tap into this market by partnering with 130,000 spaza shops.
Garth Fraser, manager of route-to-market at Tiger Brands, told CNBC Africa that the company aims to leverage the strength and heritage of these brands to drive demand from the informal sector for its products.
The company has been planning to expand into the sector since 2020, with research indicating that, at times, only about 27% of its products are available at the lower end of the market.
Fraser said Tiger Brands aims to have its product range available in 130,000 to 150,000 stores within the next five years.
It has partnered with 46,000 stores in the last two years to stock its products.
Pick n Pay’s Boxer has also attempted to take advantage of opportunities in the country’s informal sector.
The company rolled out a pilot in KwaZulu-Natal that they are still in the process of scaling up, said Mutuma.
“They’ve created an online store just for traders and spaza-store owners, and it gives them the ability to quickly order, pay and then collect bulk purchases from their nearest Boxer,” he explained.
“This kind of scale is a perfect example of someone taking advantage of the opportunity, and I think that business is also looking to take advantage of this.”
However, Mutuma warned that operating in this sector comes with very specific challenges.
For example, most spaza shop owners don’t have the luxury or access to buy stock directly from FMCGs. This could be because the owners lack storage space and the means to transport large stock volumes.
This means the shop owners often buy from wholesalers and purchase stock in limited ranges. This leads to higher cost pressures and a limited product pool.
Another challenge relates to traditional retailers’ access to townships or rural areas.
“From a brand perspective, their biggest challenge is access to the townships or rural areas. There are undefined location issues, roads are non-existent in some environments, and there’s also a safety element to consider in some areas.”
Mutuma said it is critical for FMCGs and big brands to partner with people within those spaces should they wish to understand the market.
“There’s so much nuance in the township economy. You have to be there to understand, and partnering with existing players that are already in the space is essential in order to take advantage of that nuance,” he said.
“Lots of townships are similar – Soweto and Khayelitsha will have similarities, but individually they’re completely different experiences. So if you try to enter that space without that knowledge or without those partnerships, you’re not going to have a lot of success.”