South Africa’s R197 billion hidden retail economy

South Africa’s informal grocery retail market is valued at R197 billion and is growing faster than its formal counterpart, attracting the attention of some of the country’s biggest retailers. 

Trade Intelligence revealed this following a comprehensive study of the informal, fast-moving consumer goods market this year. 

At the turn of the century, the ‘Big Six’ – Pick n Pay, Shoprite, Spar, Woolworths, Massmart, and Clicks – dominated the South African grocery retail market.

The independent wholesale and informal sectors only served those without access to modern retail close to where they lived.

Trade Intelligence said a shift started in the early 2000s when large corporations began to target townships previously off-limits due to zoning laws. 

It was assumed that the informal trade, and thus the independents supplying it, would decline. However, this did not happen. 

Trade Intelligence’s Kerry Elliot said the independent sector has proven surprisingly resilient despite increased competition from large retailers.

“Both the formal independent wholesale and the informal sectors have become important channels for consumer goods brands to reach the township shopper,” she said.

Trade Intelligence estimates the size of the informal FMCG retail market, dominated by spaza shops, at R197 billion in 2023. This is a 7% increase from 2022. 

Its data also shows that at least 11.1 million people regularly shop in roughly 150,000 independent spaza stores. 

In turn, this market is largely supplied by the formal independent trade, through unlisted retailers and wholesalers, some corporate chains and, to a smaller but growing degree, directly from suppliers.

Trade Intelligence’s data shows that technology has been one of the most significant drivers of positive change in the informal retail sector. 

Digital adoption is permeating all areas of informal trade, from stock supply and sourcing to marketing, e-commerce, and payment systems.

Younger shoppers are driving the rise of township e-commerce. 26% of spaza shoppers order from spazas via online platforms. 

WhatsApp is the dominant online platform, followed by Uber Eats, with smaller regional players making up the rest of the ranking.

The growth of the informal sector has made it a vital source of employment and supplementary income for many South Africans. 

This sector, often referred to as its own economy, closely mirrors the structure of its formal peer. 

However, it is driven by micro-enterprises, with individuals often being self-employed or part of a very small working group. 

This economy is estimated to account for around 40% of local jobs, providing a vital source of employment for a country with a significant unemployment problem. At the end of 2023, around 7.8 million South Africans were employed in the informal economy. 

By 2030, small retailers are expected to grow to 70% of all new jobs in South Africa, representing significant growth. 

Data from logistics companies exemplifies this growth, with City Logistics saying its hubs in rural areas have experienced growth north of 80% in recent years. 

The company explained that this has been driven by large, established retailers looking to tap into the rural and informal markets. 

Apart from increasing demand in rural areas, there has also been a noticeable surge in warehousing space on the edge of urban areas, closer to informal settlements and townships. 

However, FinMark Trust’s annual FinScope Consumer South Africa for 2023 revealed that the formal sector cannot absorb the amount of unemployed people in the country. 

According to their research, the number of employed people climbed from 12.6 million to 17.4 million between 2003 and 2023, representing a 4.8 million-year increase in employment. 

“However, this employment growth is insufficient to keep up with the 18 million population growth during the same period,” the report found.

While the informal sector pays lower remuneration, which makes it less attractive, its role in supplementing income is crucial.