- At the launch of the 2022 Township CX Report, I spoke with two local retail leaders about the evolution of the spaza and how these neighbourhood shopping outlets are driving innovation among FMCG retail giants to benefit their customers.
The small community grocery businesses that make up over half of all township micro-enterprises have begun to reinvent themselves and now provide stiff competition to larger supermarkets. This year’s Township CX Report surveyed close to 1500 township residents across South Africa and yielded a host of interesting retail insights. One is the fundamental role that spaza shops play in the kasi economy. In fact, while we expected our research to show that supermarkets had increased in share of wallet over the past year (with a corresponding fall in informal store activity), the opposite was true. We asked township residents if their spaza spend was more or less than a year ago and 44% said they were spending more, a substantial 11% increase over that time.
It’s not that customers are moving away from supermarket chains. Larger FMCG retailers in and around malls are often close to SASSA grant offices, banks and ATMs; they also offer some good-value month-end deals, so they are seen as destinations for the monthly bulk shop. Spazas provide convenience for everyday items throughout the month.
According to Luigi Ferrini, chief customer officer at Tiger Brands, on average, a shopper buys 3.6 items per trip to a spaza, with an average spend of R65. What’s particularly interesting is that spaza pricing is quite competitive with the larger retailers and that prices are comparable for everyday basics.
A key factor driving the competitiveness of spaza shops is the opportunity they offer consumers to access affordable products through smaller pack sizes and single items—something the FMCG producers (like Tiger Brands) have enabled through innovative spaza-specific packaging.
While spazas and supermarkets undoubtedly exist in competition, the success of both is key to a thriving township economy. Frans van der Colff, managing director of VDC Consulting and former director of Fruit & Veg City and Pick n Pay, believes there’s room for both. He sees the two operating in a symbiotic relationship. However, it’s not always an evenly balanced one, with too many examples of large companies moving into townships and taking their earnings out. Instead, he believes that we need to create more ownership within townships.
Spaza owners run very slick operations with collaborative buying and strong supply chain links with the mini wholesalers that supply them. The next step is cultivating collaboration between retailers and suppliers to create more shared value for all.
Adding more value
Spazas could undoubtedly enhance the competitiveness with larger stores by bringing down the price of staples like maize, sugar and so forth. The best way to do this is to strengthen their buying power. Van der Colff says the solution here lies in getting these shops to work together more. He asks: what is stopping ten or more spazas from buying together, creating a loyalty programme and offering an even more customer-centric service?
Collaboration is a major talking point for FMCG brands as well as smaller local brands too. Van der Colff says he’s spoken to many spaza shop owners who are keen to get involved in group buying. What they need, though, is someone to kick-start knowledge sharing and organisation, and the supermarket groups should step in to spend time assisting the spazas, educating them, sharing their expertise and setting an example.
As for whether kasi shoppers would support a loyalty programme, the answer is an overwhelming yes! We asked the question for the Township CX Report, and 90% of respondents said they would welcome a spaza loyalty programme. Everyone wants a reward for supporting a store – it’s a real value add.
If there’s one clear advantage that spaza shops have over larger retailers, it’s the connection with their customers. They know what their shoppers want. Their customers tell them. Those are the products that bring feet through the door and sell quickly. Spaza shops understand their customers far better than the larger chains. While some supermarkets are doing really big turnovers in the townships, Van der Colff thinks that at times they neglect customer service and don’t give the same level they would in Sandton or Constantia, which is a problem.
The game changer for spazas and their trade ecosystem—both upstream and down—will be connectivity. With 48% of our respondents saying they have at-home Wi-Fi and 70% making purchases online, it’s fair to extrapolate similar figures into the spaza space. Already, spazas are using WhatsApp to check prices and communicate with wholesalers. The app is also used to place orders on emerging platforms like Order-kasi, which provides stock to over 70 spaza shops in the Katlehong area.
The more connected these township entrepreneurs become, the more they will be able to push and influence brand propositions to shoppers. Similarly, producers will be able to communicate product innovations to their spaza customers more effectively for immediate on-selling to customers.
The connectedness with local communities will give spazas the opportunity to be more competitive in their markets than the larger retailers. Watch this space.
Published in BusinessDay