‘House labels drown spazas’
TOWNSHIP SHOPS BEING BEATEN ON MARGINS
SA’s big grocery retailers stand accused of engaging in price wars and anti-competitive behaviour by squeezing out spaza shops in townships with their “no-name brands”.
Panichi Gundo, the chairman of Soweto Brands, a manufacturer and distributor of household goods in Gauteng’s townships of Alexandra and Tembisa, this week accused Pick n Pay, Shoprite, Massmart and Spar of aggressively pushing private label products, making it difficult for smaller retailers in townships to compete on price. “Private label products are a big problem in townships. Big retailers have every product category in a private label form, giving them more control of the market,” Gundo told the Competition Commission’s inquiry into the grocery retail sector.
Private label goods or no name products are cheaper alternatives to branded good and generate higher margins, as they don’t require packaging and advertising costs.
Retailers use them to drive more feet into stores. Gundo told the inquiry the big four retailers were reluctant to sell branded goods in townships as “they know they can make big profits with private-label products”.
“Big retailers can compete on price and set prices. There is a distinction between market share and market power.”
He singled out Pick n Pay, saying 20% of its customers purchased private label products. “It now wants to push this up to 30%.” Gundo argued that competition law in South Africa is ill-equipped to deal with the proliferation of private-label products.
The big four retailers have been ramping up store roll-outs in township and rural areas, taking advantage of regions that lack formal retail trade.
Grocery retailers (except Shoprite) said their entry into townships had brought quality products and more choice for consumers.
Mphuthi Mphuthi, chairperson of Soweto Business Access, which represents township entrepreneurs, argued the entry of big retailers in townships was causing more harm than good.
“Spaza shops are now in survivalist mode,” Mphuti said.
“Big retailers’ operating costs are advantageous. Spaza shops in the townships buy merchandise from wholesalers for cash while big retailers buy theirs on concession for 30, 60 and 90 days. They are able to turn their stock over and over at minimal profits because of their large size.” Mphuti also criticised the recent roll out of a franchise system (on an experimental basis) in Soweto’s Diepkloof, to convert a spaza shop into a Pick n Pay outlet. Pick n Pay said it planned to open five similar shops across Gauteng in the 2016-17 financial year.
“Pick n Pay already operate large stores in Soweto. Now the multibillion retailer is converting spaza shops into Pick n Pay stores, which is really painful,” he said.