In the hangover after the World Cup we may fail to notice some really good news on the economic front. Well-known for their shopping prowess, South Africans have been getting back into retail therapy in recent months and the soccer gathering may have helped them spend even more.
Last week, Stats SA reported that retail sales growth for May was way ahead of expectations. And that growth came on the back of positive growth for the previous four months. This week, Famous Brands (owners of Steers, Debonairs, Mugg & Bean and Wimpy among others) reported an outstanding trading update, aided in no small measure by the World Cup. In June, the group’s sales rose 24% compared with June 2009. It is quite possible that July’s growth will be equally spectacular.
To try to put this growth in perspective, it has to be seen in a seasonal context. Fast-food operators (or “quick-service restaurants” as they prefer to be called) traditionally enjoy their best trading in December at the height of the southern hemisphere summer when the kids are on holiday and parents have to entertain them in shopping malls and elsewhere. The winter months, in contrast, are not nearly as good, as people are less inclined to spend and school holidays are far shorter.
So yes, June/July 2010 is an aberration as far as consumer spending goes, especially as schools were closed for the duration of the event – almost twice as long as normal. For the year as a whole, the World Cup will probably be seen in retrospect as the catalyst that sparked consumer spending back into life again. It will transform a traditionally quiet period into the second-highest trading period in the year.
As the year progresses, so the broader economy is forecast to improve. People will feel better about spending and will probably be less fearful about their job prospects. And as we go into 2011, prospects look even better. A recent Organisation for Economic Co-operation and Development document forecasts that SA’s GDP growth in 2011 will be 5%. While that may be slightly optimistic, it probably won’t be too far off the mark.
Lest we get carried away by this euphoria, it must always be remembered we still have chronically high unemployment, consumer indebtedness is near record highs and the National Credit Act will be a natural brake on unfettered explosion in credit-granting.
But what economists may be missing is that South Africa is a nation of spenders – we just love spending on food, on clothing, on motor cars, on jewellery. A lot of it is aspirational spending. Take beer, for example. Regarded by many people as a humdrum commodity, in recent years its appeal has been expanded significantly by a proliferation of the so-called premium segment of the market. This segment includes products such as Amstel Lager, the Windhoek family of beers, Stella Artois, Grölsch and Pilsner Urquell to name just a few. The beauty of this segment is that it allows many people to achieve, at a relatively low cost, perceived status in society just by purchasing one of these products. But even here it has been estimated that around 30% of the consumers who drink premium beer can’t really afford it. Never, ever dismiss the power of branding.
After a couple of years of declining growth, premium beer consumption is growing strongly again. So who’s buying, if the economy is really as weak as it’s sometimes perceived to be? The answer is, that buying is coming from across the board, but especially from the growing, emerging black middle-class.
Often, economists are blinded by what appear to be immutable facts. This recovery has different dynamics driving it compared with previous recoveries. But what is not at issue here is pent-up demand. Just because someone can’t afford something today doesn’t mean that he or she will forgo it forever; at some point in time that insatiable need to spend will be satisfied. And unless there really is a double-dip recession looming, that spending will materialise.
By Christopher Gilmour
(Gilmour is an analyst with Absa Asset Management Private Clients)
Photo: A man leaves a Woolworths shop in Sandton, northern Johannesburg. REUTERS/Siphiwe Sibeko