Retail goliaths muscle in on spaza shops
The spaza shop has long been an identifying feature of the township retail economy. Lately, they have been coming under increasing competitive pressure, first from retail chains opening large-format stores in the townships and then from foreign-owned spaza shops.
In Cape Town, a Sustainable Livelihoods Foundation report on formalising informal micro enterprises found that 56% of spaza shops were owned and run by South Africans and 46% run by foreign nationals, of whom 80% were Somali.
Now the large retailers are threatening the livelihoods of spaza owners again. In 2017, Shoprite, through its Usave brand, piloted “Usave eKasi ”—a container-store model with units of 100m² and 200m² occupying locations within the township that would ordinarily be occupied by spaza shops.
Pick n Pay has followed suit with a spaza pilot of its own, and sees itself as a partner for shop owners, contributing a distribution network and efficient inventory management systems.
In October 2015, the Competition Commission instituted a grocery retail-sector market inquiry aimed at analysing the state of competition in the sector.
The inquiry was finalised in May and found that “there is a combination of features in the SA grocery retail sector that may prevent, distort or restrict competition … Further, and most importantly, the inquiry is of the view that spaza shops and independent retailers are a crucial tool for the realisation of the objectives of the Competition Act.
“Specifically, spaza shops and independent retail operations are part of the suite of avenues available for the achievement of broader and inclusive economic participation given the lower entry barriers into these types of businesses.”
The commission detailed how there was a need for improved bargaining and procurement support for spaza shop owners, not only to formalise their businesses but to ensure they remain competitive and viable. According to Unisa’s Bureau of Market Research, the spaza economy contributes about R9bn to the SA economy. The 2012 Studies in Poverty and Inequality Institute household survey found that households procure about 30% of their food from spaza shops, significantly less than 15 years earlier on the back of closures and business failures as big business took a larger portion of that market, among other competitive factors. The highly concentrated industry is already a challenge for the SA economy, as measured by the Her fin dahl Hirsch man Index (HHI). A report on the extent of market concentration compiled by Competition Commission researchers found that the food and agri-processing sector (the sector having the most obvious effect on spaza shops) had the second-highest number of product markets (21%) in which dominant firms had market shares above 45%. The sector also recorded the fourth-highest HHI concentration score of 2,861, which is very high.
People all too often associate badly run businesses with spaza shops, uttering “We don’t run a spaza shop here”. Yet the spaza shop model is innovative in that it mastered the science of “precision retailing”, a method that stocks the goods that are most needed by customers.
This important contributor to the sustenance of the township economy is coming under unbearable pressure, and policymakers ought to react fast before spaza shops become extinct as a result of the market dominance of the large retailers that are creeping further and further into the informal market.