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Spaza shops, xenophobia and their impact on the South African consumer

Andrew Plastow has officially been a marketer and smous of consumer goods for over 18 years, though as the son of an immigrant supermarket manager he has been working in stores since the beginning of high school. In 2010 he returned to SA after 3 years in Nairobi running the worlds largest consumer goods companys East African business.

Given that by 2010 the vast majority of spazas were run by immigrant traders, you could argue that the one of the largest direct foreign investments in the country since democracy was underpinned by the buying power of immigrant spaza store sector. What’s the real economic impact of xenophobic violence – and the economic power of immigrants in South Africa?

I was living and working in East Africa when xenophobic violence gripped South Africa in 2008. I had left South Africa about a year before, during a time of gradual decline of the “informal” or “traditional trade” sector of spaza shops and kiosks. They were become less relevant, as the big national chains, offering significantly lower prices and wider ranges, dramatically expanded their store universe.

The national supermarket chains were reaping a post-Apartheid windfall. Fuelled by the dramatic increase in black consumer spending power, consumer access to the cheapest credit ever, they were being actively encouraged to expand into townships by shareholders and municipalities. During this time technology became an increasing enabler for retailers and the property firms that build shopping centres. They could now cheaply use satellite imagery to assess areas, quickly calculating their buying power by gauging the roofs, satellite dishes, transport modes and infrastructure, and overlay and plot the nearest shops – supermarkets, cafes and spazas. Distribution systems also improved enabling small rural towns to be economically reached by the big chains. The battle for retail territory was on. Many of these new areas couldn’t justify a fully-fledged supermarket, so new formats like Shoprite’s U-Save and Boxers’ Punch were innovated.

The South African consumers voted with their wallets. Traditional spaza stores and kiosks, like garage forecourts in the suburbs, offered convenience but little else. Their pricing was high (usually about a 20% premium) because their volumes were low, and range was limited to a few staples and sweets and a near non-existent offering of perishables like fruit and veg, frozen chicken or chilled polonies. Shoppers were buying as much as they could carry on their way home from work, or on a Saturday specialist trip and paying the increased taxi fare.

One of my biggest tasks in East Africa was to build a “direct to small store” network of sales people and deliveries, copying what had been done in places as different as Morocco, Nigeria, Peru and Pakistan. Working creatively and applying local expertise, it was very possible. In South Africa the opposite was happening. The number of van-selling distributors was decreasing as the big brands seemed to back the modern trade expansion and the accountants cut the cost to serve.

Against this juggernaut from the big chains, there was also change in the spaza universe. As local store owners closed shop, they were often reopened by immigrant traders, paying rent to the previous store keeper or landlord. At first these were usually Somali refugees, fleeing their “failed state” but joined in their new business model by new immigrants from many African and Asian countries. This new business model has been much written about, but effectively revolves around providing what your shopper wants, reducing margins and selling more, whilst cutting your overheads to the bone. Not that different in essence to what made Raymond Ackerman and Whitey Basson household names.

So my view in 2008 from abroad was that xenophobia would kill off this resurgence of the small trader, and visiting small stores across East Africa there seemed good evidence for that. In Ethiopia, Tanzania, Malawi and Zambia, I met people who had gone to South Africa in search of dreams and come home with the physical, emotional and financial scars to show for it. “Ah Mr Andrew, South Africa hey, Bafana Bafana! Where are you from? Cape Town bwana, yes I also used to live in Philippi/Salt River/Maitland/Bellville/Strand. Don’t worry you are safe here!” Then, after building some trust and on probing… “too violent” was the regular haunting lament.

Around 2008/9 I also noticed that increasingly in some far-flung Ugandan village you’d meet an Indian store keeper, newly arrived and beaming with excitement and drive (and little knowledge of Idi Amin and his Indian purge, a generation before). I began to question: had our South African spaza revolution really come to an end?

I moved home to South Africa in mid-2010, during the World Cup, to develop one of the country’s iconic staple food brands. The spaza revolution was in full tilt. One of my first encounters was with an Ethiopian kiosk manager. After some broken Amharic greeting, I quizzed him as to how he got to Jo’burg expecting to hear a Jonny Steinberg story of struggle: “I flew Ethiopian Airlines (Africa’s biggest airline). I hope to pop home to visit family after the World Cup when fares come down. Did you hear that they’ll be the first to operate Boeing’s new Dreamliner in Africa?”

Within a few days the whole country was Ghanaian for a week as we cheered for the Black Stars. Perhaps this xenophobia thing had been blown out of all proportion by the media.

My new brand benefited from some of the best distribution in the country, but our route-to-market, like most “kasi” brands, relied on the huge cash and carry wholesale sector. The giant of this sector, Metro, was on the ropes. Just a few years earlier the MetCash group had arrogantly dominated the consumer goods space, often accounting for around 40% of a brand’s sales. Branches were found in most towns and they supplied the tens of thousands of small grocery spaza stores. During its rapid decline, the slack had been taken up by both the retail chains, with analysts now quoting how many surrounding spazas closed when a chain supermarket opened in a township, and by the independent wholesale buying groups. One of the biggest winners from the Metro decline was Massmart. Not so much their retail brands that most people know, but their wholesale Masscash and Makro divisions. The brand I am the custodian of had sales of about R1.5 billion at the end of 2010 and for the first time in its history, more than half was being bought by the national retail chains. Massmart’s Masscash division (Shield, CCW, Jumbo, Browns & Weirs cash and carries) was its largest single customer.

But while some spaza owners had options, most did not. Their store was their only ticket, and if you’re resilient enough to find your way to running a store in far off land, you are resilient enough to stick it out in the tough times. They built networks. They tried to assimilate into their new communities, employing some local staff, sometimes marrying locals, paying rent and protection money. But their survival and success was driven by the service they offered. Township consumers, be they in cities or small rural towns, could now send their kid to the local corner shop to buy staples– bread, sugar, maize meal, tin foods, single diapers, air time, soda, etc., and know that the price was as good if not better than the town supermarket. The store traded longer hours, and was now keeping more products than ever before, not just the basics. You could now buy energy drinks and I was surprised to find Ferrero Rocher three-packs in Soweto kiosks. The decision maker was there in store too, which meant you could maybe get credit. With rising taxi fares, you no longer needed to make that extra trip to town, or pay that extra fare for your bags of groceries. You could save your town shopping for clothes and perishables. The immigrant spaza store keeper was back in the game and he was competitive.

The wholesale buying groups took their learnings from the dying Metro too. They took over Metro outlets, started promoting more than just the traditional “KVI” (known value item) products where there was no margin, got close to their local immigrant shoppers, employing people who spoke their languages and treated them like customers rather than a strange foreign entity. While immigrant spaza success is often attributed to their “purchasing in bulk” buying networks, my experience is while networked (like immigrant communities anywhere in the world), just like you and me, they buy where the price is right and transport is convenient and the shopping experience meets their needs. You only need to open a copy of the Citizen of a Thursday to see just how competitive the wholesale industry is, with chains and buying groups like IBC, ICC, Unitrade, Devland, CBW, that most people have never heard of, doing billions of rands in turnover.

Immigrant spaza stores’ contribution to the economy is not my area of expertise, but I’ve read much quoted on their employment of locals, renting of their shops and transport, buying and selling local brands from the wholesale sector, and SARS catching most of this through VAT. What seems to be overlooked though is their link in Walmart’s acquisition of Massmart. When the world’s largest retailer decided to enter Africa in late 2010, it paid over USD2bil for 51% of Massmart. Massmart’s biggest division at the time was Masscash (which sells basic food and dry groceries, not Walmart-sourced electronics or toiletries, to spaza stores). Add to this the consumer goods that Makro sells to spaza stores and you have over half of group sales. Given that by 2010 the vast majority of spazas were run by immigrant traders, you could argue that the one of the largest direct foreign investments in the country since democracy was underpinned by the buying power of immigrant spaza store sector.

What though of more recent trends? The year 2014 saw a renewed drive by the retail chains to aggressively open new stores, with Shoprite leading the charge. Direct-to-store distributors are suddenly in favour with Unilever, Nestle, P&G and others aggressively investing in direct coverage distributors as they do in other developing markets. As for the brand I am responsible for, even after excluding new products and countries, sales have still doubled since 2010 and spazas stores are back to indirectly accounting for over half of sales.

The year 2015, however, started with the explosion of looting of immigrants’ stores across townships in the East and South of Gauteng. With many press photos of police standing idly by, gangs of former shoppers became looters in this vacuum of authority and leadership. I heard an industry expert speak of how spazas had been offering more credit during the traditionally tough January month for shoppers, and the easiest way to avoid your debt is to chase away the creditor. The wholesale sector in these areas immediately experienced a dramatic slowdown in sales. Those spazas which weren’t directly affected by the violence are more circumspect and have reduced inventories and their risk. The crisis of the last fortnight in KZN and now Gauteng has spread fear across the country. This time around, the impact is also being felt across the borders on South African brands, with talks of boycotts and punitive action against South Africa interests. I was back in Ethiopia earlier this month, just as King Zwelithini was making his speech. Addis is booming, and there are many new small supermarkets and lots of well-run shops. I found myself wondering if the happy storekeeper I had met in 2010 had taken that Dreamliner home one last time and was now running one of these stores, or whether he considered himself now integrated into South Africa?

In the long term, the biggest impact of this violence, though, is perhaps on the township shopper. With their local spaza now closed, they are back to travelling to town or across the township to do all their grocery shopping. Transport costs are a lot higher now than in 2008, and traffic is worse, and with food inflation already running at around twice CPI, the real price impact of this extra transport leg will be noticed most by the most vulnerable in our society, the poor. Scrap that: by the second most vulnerable; that is, after the immigrant shopkeeper, who has contributed so much more to our economy than they have taken from it. DM

Andrew Plastow has officially been a marketer and ‘smous’ of consumer goods for over 18 years, though as the son of an immigrant supermarket manager, he has been working in stores since the beginning of high school. In 2010 he returned to South Africa after three years in Nairobi running the world’s largest consumer goods company’s East African business.


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