Shoprite and Pick n Pay’s R259 billion battle

South Africa’s retail giants Shoprite and Pick n Pay are battling over the R259 billion market to supply spaza shops and formal independent grocery chains with products. 

They are not alone. Food processors and manufacturers such as Tiger Brands are working to increase the presence of their brands in this market, partnering with wholesalers and cash and carry stores to do this.

Trade Intelligence revealed this as part of its research on the grocery industry in South Africa, with a particular focus on the informal sector and smaller, independent stores. 

The company first began researching the grocery industry in 2004, when it was dominated by the ‘Big Six’ of Pick n Pay, Shoprite, Spar, Woolworths, Massmart, and Clicks. 

Informal traders and independent wholesalers served those without access to modern retailers close to home. 

While those six brands remain powerful, informal spaza shops have grown strongly alongside the wholesalers that supply them. 

For the past two decades, the size and continued growth of the informal market and wholesalers have attracted the attention of formal retailers, but many have struggled to break into the market. 

Formal retail chains began entering these sectors in the mid-2000s when zoning laws changed to allow big corporations to set up shops in and around townships and informal settlements. 

It was assumed that the informal trade and, thus, the independents supplying it would decline, but it proved remarkably resilient. 

Trade Intelligence estimates the spaza shop sector to be worth R197 billion, and over 11 million South Africans regularly shop in the 150,000 informal stores around the country. 

This market is largely supplied by formal independent traders, typically wholesalers, and, to a smaller but growing degree, directly from suppliers. These independent chains also sell in bulk to households and other businesses, typically in the hospitality sector.

This industry is one that traditional retailers are targeting and is estimated to be worth around R259 billion as it provides exposure to the fast-growing informal market without directly competing against spaza shops.

It also gives traditional retailers access to the wholesale cash and carry market, which is tremendously lucrative in South Africa.

The combined value of these two markets is around R456 billion and presents a significant opportunity for formal retailers to grow outside of South Africa’s stagnant formal economy. 

In particular, these traditional retailers and some suppliers want to dominate the R259 billion wholesale supply of goods to informal traders.

However, this is a complex and changing market in which to do business due to blurred routes to market and continuous shifts.

Shoprite has been the most effective in tapping into this growing market through its Usave stores, specifically targeting spaza shops’ supply. 

Pick n Pay entered this sector much later, launching its ‘Traders Welcome’ campaign in 2016 to get informal shopowners to source their stock from its stores. 

It looked to offer bulk deals to informal retailers but has been effectively outcompeted by Shoprite and independent wholesalers. 

Similarly, Massmart’s Cambridge Foods failed to succeed and was summarily sold to Shoprite in August 2021. 

Shoprite’s Usave and Cash & Carry stores remain dominant. They now offer a fully automated online shopping experience with free delivery within a certain radius for shopowners looking for stock. 

Spar has also recently begun offering delivery to townships through businesses such as Delivery KA Speed and KasiD. 

Traditional retailers focus much of their energy and resources on taking over the independent wholesale market, which supplies informal traders. 

However, they are now under increasing pressure from fast-moving consumer goods (FMCG) companies looking to go directly to informal traders. 

Suppliers like SAB, and Coca-Cola have long recognised the importance of informal and independent trade to their businesses, with various initiatives from point-of-sale giveaways to store upgrades to business training, Trade Intelligence said. 

In 2023, Tiger Brands announced a route-to-market strategy to increase the presence of its products in informal and independent township stores. 

Tiger Brands owns some of South Africa’s most valuable and well-known brands, such as Koo, Oros, Ace Maize Meal, Black Cat, Albany, and Jungle Oats. 

The company said at the time that it is looking to grow the visibility and availability of its brands in this sector by partnering with spaza shop owners and the local community. 

It 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.

Tiger Brands aims to have its range of products 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.