Business Day

Retail goliaths muscle in on spaza shops

- ● Skenjana (@sifiso_skenjana) is founder and financial economist at AFRA Consultant­s. He is completing a PhD in finance for developmen­t.

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.

 ??  ?? SIFISO SKENJANA
SIFISO SKENJANA

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