The Traditional Trade sector in South Africa has experienced an impressive post COVID-19 resurgence, reaching new heights in total FMCG sales (incl Liquor & Tobacco) in 2023 according to the latest NIQ South Africa analysis. The sector achieved R187-Billion in annual spend in the 12 months up to the end of June 2023 compared to R151-Billion in the previous year, or 23.6% growth. This versus 14.7% within the Modern Trade sector.
This data stems from NIQ South Africa’s measurement of 17 000 stores on an ongoing basis which provides the widest coverage of the FMCG industry in South Africa with some of the most granular data collected in the market.
NIQ South Africa Market Leader Gareth Paterson says; “Independent retailers, which include non-branded superettes and Spaza shops, have successfully commanded a substantial share of the market and now account for R27.4 of every R100 in FMCG sales. This reflects the changing preferences of consumers and the lasting impact of COVID-19 hard lockdowns on spending patterns.”
He also points to a growing parity between Modern Trade (MT) and Traditional Trade (TT) outlets which can be attributed to manufacturers investing in route-to-market strategies, leading to the removal of nodes in the supply chain. This optimisation has resulted in significant cost reductions, benefiting independent retailers and their consumers. This trend has also created a situation where more than half of the Top 200 food and beverage items were cheaper in TT during Q4, 2022. In addition, prices in MT and TT have converged, even during high promotional periods like Black Friday and December in 2022 and Traditional Trade outlets have continued to offer items at better prices, even in the absence of promotions.
“Moreover, the inherent agility of TT outlets allows them to respond quickly to consumer demands. If consumers express a preference for a specific brand, the outlets promptly start stocking it. This responsiveness to consumers’ needs has become a key factor driving its growth,” says Paterson.
Another driving factor is that TT outlets have not been impacted as much by loadshedding, given their lesser reliance on cold storage facilities, whereas MT outlets have been forced to spend billions towards running generators to keep their store lights on and tills operating. This has resulted in a severe knock to operating costs and their ability to offer discounted prices to consumers.
A growing role in consumer consumption
As a result, independent stores are no longer merely viewed as a destination for buying incidental items and top-ups. Instead, TT has evolved into a channel where consumers can conveniently purchase all their essential needs. There has been a notable shift in consumer behaviour, with more shoppers choosing Traditional Trade stores as their primary shopping destination. Paterson states: “Traditionally, consumers didn’t buy many items in a single occasion at a TT store. However, we are witnessing a shift towards it becoming a one-stop shopping destination where consumers can find everything they need.”
For manufacturers operating in the market, this trend has significant implications. Paterson elaborates; “Brands that experience declining volumes in MT but see growth in TT must pay attention to product availability. For example, consumer ‘out-of-stock sensitivity’ is high and if a key product line is missing from MT stores, consumers might shift their loyalty to another brand or product, leading to potential volume shrinkage in MT or forgo future trips to that store.”
He adds, “To counter this trend, brands also need to be agile and ensure they cater to the needs of consumers across different channels. Snacking, for example, has become dynamic, and brands must ensure their products are available where consumers are buying.”
In conclusion, South Africa’s TT sector is witnessing a renaissance, offering consumers proximity, better prices, and an extensive product range. The convergence of prices, coupled with supply chain optimisation, has bolstered the growth of independent shopping channels. Paterson advises; “For brands looking to stay competitive and sustain growth, a strategic focus on TT is becoming imperative. As this trend continues, businesses that align with consumer needs and leverage the agility of TT outlets stand to thrive in this evolving market landscape.”