How SMES can navigate April’s volley of price hikes
SMALL businesses in South Africa should brace for a difficult operating period in April, according to data released by Retail Capital’s monthly SME economic forecast.
A reduction in trading days due to public holidays and Easter has undoubtedly had an impact on SMES who have had fewer days to hit targets and inevitably seen a decrease in consumer engagement, the forecast showed.
The report stated that the election day seems to have cast a shadow over the market, with some businesses facing something close to paralysis as the country waits to find out what the implications of the election result will be, no matter how predictable that result might be.
Retail Capital said: “This uncertainty puts businesses in a precarious position when predicting April results. With more trading days in April this year compared to March and April 2023, optimistically the market can expect a reversal of fortunes. However, persisting uncertainty regarding the general direction of the country and the challenges of a low growth economy, impacting even the most bullish of business owners, there is no guarantee that there will be a quick turnaround.”
Petrol prices, interest rate decisions, and basic service delivery failures are still going to be affecting day-to-day logistics, but there has been the emergence of new levers to be pulled, and new tactics for growth that businesses can employ.
This month’s SME forecast compiled by Retail Capital, a division of Tymebank, explored where Miguel da Silva, Managing Executive, sees a pathway to zig, while others zag.
“The best business strategies are all about finding the uncontested spaces and putting your own marker down. And when things are tough, that differentiation is the difference between being successful or being static,” da Silva said.
Increased water shortages
If the persistent and painstaking reality of load shedding isn’t enough of a threat to business sustainability, the impending threat of a nation-wide water-crisis – already impacting large parts of Johannesburg – has the potential to push some pockets of the market over the edge.
South Africa’s economic hub has recently experienced days, and in some cases weeks, of dry taps thanks to power failures, lightning strikes, burst water pipes and planned maintenance.
And by most accounts, Johannesburg is not the only city experiencing water supply and/or infrastructure problems.
The Department of Water and Sanitation’s 2023 Blue Drop Audit Report stated that 67.6% of wastewater treatment works are close to failure, while close to half (46%) of water supply systems in the country pose acute health risks due to contamination.
The prevalence of outages in the ethekwini Municipality leads to a new phrase to describe the turbulence –
water shedding.
The entire community is impacted by a lack of water, but it is acutely felt by small businesses, especially those operating in the hospitality and tourism industry.
Restaurants, gyms, car washes and hotels are some of the obvious businesses to be impacted, but it is also a devastating blow to businesses that need water for manufacturing, or simply need to provide basic sanitation.
Issues like these are why planning for sustainability should always be on the table.
When compared to the energy crisis, and Covid-19, water shortages impacted less than 2% of businesses.
While the question was framed in the light of Cape Town’s “day zero” – which can account for the small percentage – it is safe to assume that if the same survey was conducted today, the issue of water shortages would be of concern to a much higher percentage of SMES as the issues spread across the country.
Petrol and diesel up again
Current fuel prices are not doing our inflation levels any favours and they are not helping SMES who are looking to get a grip on the fluctuating running costs of their businesses.
Petrol price increased by another 67 cents a litre on April 3 and diesel by 3.22 cents a litre – on the back of steep increases in February and March.
This is likely to fuel inflation, which already hit a four-month high in February, even more.
This will likely lead to higher supply chain costs, and household budgets being tightened further. High costs and less disposable income inevitably add up to tough market conditions for SMES.
While an increase in the petrol price is not good news for business owners, stability in both the global oil price, and the rand/dollar exchange rate could well mean a drop in price in May.
However, fuel prices remain volatile and in times of uncertainty, SME owners would do well to take a conservative approach and to be prepared in the event of prices hikes in the months to come.
Earnings threshold increased
As of April 1, 2024, the Earnings Threshold for all full-time employees was increased from R20 093 per month to R21 198 per month.
The threshold is an earnings figure implemented to ensure the fair treatment of employees and is also an indicator of government-mandated benefits for those earning under the threshold.
An increase means that more employees are now covered by the Basic Conditions of Employment Act.
An increase in the earnings threshold will result in more employees being eligible for overtime payments, limits on hours worked, increases in regular breaks, and restrictions on night work and obligations to work on public holidays.
While this empowers employees, there can be significant financial impacts for business owners.
The increase in the threshold is generally regarded as a positive move, and a move to empower employees, safeguard jobs and increase consumer confidence – which is key to moving the economy forward and unlocking opportunities, because ultimately, we are all consumers, and our actions drive the economy.
Increased competition
Retailers need to keep a watchful eye on the increase in e-commerce competition that is putting a strain on sales numbers of local businesses.
Any product search on Google right now will likely result in a flood of results from Temu – a relative newcomer in the South African e-commerce landscape, that launched in January 2024.
Temu, and other platforms like Shein, are based in Asia and offer deeply discounted prices on just about anything imaginable.
This means local advertisers need to have a workaround to advertising their business as they have been used to doing.
Because of this increasingly contested space, there is an increase in the use of local online marketplaces like Makro Marketplace.
By using closed peer-to-peer community platforms, employing hyper local, hyper targeted key words in their digital marketing strategy, leveraging existing databases with CRM campaigns for repeat purchase, or simply being present at local events, SMES can operate in spaces the Temus and the Sheins can’t reach.