Rivalry rises as supermarkets eat into informal township economy
• Large national chains are changing the way that business is conducted in the country’s high-density areas, to the detriment of small local retail players
Townships and periurban areas across the country are experiencing painful changes in the retail and consumer space. These neglected areas have become a battleground between small and independent retailers and national supermarket chains.
As the big, formal players move into these once unwanted territories — changing fundamentally how business is conducted in those areas — there has often been tension between the new entrants and existing small and informal businesses.
Townships house more than half of SA’s population, according to the World Bank. While income levels in these highdensity areas are low, and unemployment is high, most households have access to or receive government grants.
A recent study by think-tank Urban Landmark on the township economy found its populations are consumption-oriented, with many households spending a significant percentage of their income on food and beverages, clothing and footwear, electronics and furniture — making retail the foremost economic activity in townships.
Traditionally, township residents have been serviced by local, small-scale businesses. Some entrepreneurs sell their wares and goods from street corners, while others open spaza shops. It is not uncommon to find a local butcher or baker operating from their home.
National supermarket chains have begun to move into townships over the past decade, bringing the promise of convenience and lower prices.
As Pick n Pay highlights in its nonconfidential submission to the Competition Commission’s grocery retail inquiry, the expansion into townships by supermarkets “has proved highly beneficial to consumers” and probably to the retail chain itself. “It has provided communities in these areas with access to a wide range of grocery products and lower prices than was previously the case, as well as food safety and product quality, together with access to a range of services,” Pick n Pay says.
“In many instances, these services may either have not previously been available to consumers … or not accessible at affordable prices.”
Shoprite, Pick n Pay, Spar, Woolworths and Fruit and Veg City account for 80%-90% of the food retail market in SA, with Pick n Pay the second-largest grocery supermarket chain behind Shoprite.
Shoprite has not made public its submissions to the Grocery Retail inquiry, instituted to investigate whether there are features in the sector that may prevent, distort or restrict competition.
EXPANSION INTO TOWNSHIPS BY SUPERMARKETS HAS PROVED HIGHLY BENEFICIAL TO CONSUMERS
While consumers have benefited from big business moving into townships and peri-urban areas, existing small businesses there are feeling the pinch and seemingly fighting a losing battle.
Sustainable Livelihoods MD Leif Petersen told the panel at the Grocery Retail inquiry that selling food and drink represents more than 50% of microenterprises in urban townships.
Petersen, along with colleagues at the Institute for Poverty, Land and Agrarian Studies (Plaas), has conducted research over the past decade about the nature of the informal township economy in relation to food security in SA.
“When we first started doing our research, there were very few supermarkets operating in the townships. Supermarkets and shopping malls are placing a lot of pressure on township retailers,” he says.
“Because we don’t know the full scope or scale of the informal business, we have allowed supermarkets to swoop in at pace and this has potentially big implications for those economies.”
Petersen says important factors that affect grocery retailing in township economies include inappropriate government policies; unfair competition from the corporate retailing sector through shopping malls and large, chain businesses that create localised grocery retailing monopolies in townships; and unfair competition by the government’s outsourcing of the distribution of South African Social Security Agency grants to corporate retailers.
While most supermarket chains contend that they do not compete with small and independent retailers, Petersen disagrees. “There is direct competition in product lines. Shoprite in Browns Farm retails chicken feet in their delicatessen, something you would not find in any of their shops in the suburbs. There are some very strategic decisions being made by supermarkets in this regard,” he says.
There have been calls for informal businesses to become formal so they can better compete with the big chains, however there are barriers to doing so. This includes inappropriate policy, which commonly includes municipal landuse zoning that retards township businesses.
Land-use zoning in townships is primarily for residential use only and changing a zoning to allow for business activities requires cumbersome and technocratic bureaucratic procedures that are largely out of reach for most informal economy businesses.
Conversely, says Petersen, formal sector business, in particular supermarket chains, have the legal and financial means to buy and rezone land to suit their business needs.
“The unfairness of this competition lies less in the actions of the formal retailers, but in the perpetuation of the structural inequality of the country’s economy that favours formal sector business over an emerging entrepreneurial class of township retailers,” he says.
Marcelino Julies, an independent retailer in the Western Cape who operates in Gugulethu, says not only does he worry about national supermarket chains, but competition from foreigners is also a big consideration for local business owners. “I would say [on] every two streets, there will be a shop there and another challenge is the foreign shops that are dominating,” he says.
“You find the bigger players enter the location, but you also find foreign shops that have much a bigger power because they are coming together [to make purchases],” Julies says.
“Where you as the citizen of the country don’t have power to go directly to manufacturers to bargain … we don’t have that power because there are many barriers within the surroundings of the township.
“Bigger retailers and foreign retailers have a bigger market share because they can get their goods cheaper — at a good manufacturing price — which we don’t have the power to negotiate with suppliers and manufacturers,” he says.
’WE HAVE ALLOWED SUPERMARKETS TO SWOOP IN AND THIS HAS POTENTIALLY BIG IMPLICATIONS FOR THOSE ECONOMIES’