Spaza Shops Have Great Potential but Need Support

When organizations are badly managed, people often use the analogy that the said organization is run like a spaza shop. Not only is this analogy disrespectful to entrepreneurs who own these spazas, but it’s factually wrong. Customers buy more than 70% of their products from over 3 million small independent shops across the continent. Yet the sector faces many challenges that need to be addressed for them to remain successful.

Boston Consulting Group conducted a study, speaking with more than 4 500 traditional retailers across the continent, with a view to learning about who these retailers are, what challenges they face as well as what opportunities exist for the sector and its various players. “Traditional retailers will continue to be the backbone of Africa’s economic environment and non-traditional participants in the ecosystem will find possibilities to grow alongside them and deliver greater financial inclusion throughout the continent,” says Nomava Zanazo, Consultant at Boston Consulting Group (BCG), Johannesburg.

The research found that transformation in the sector is driven by who the shop proprietors are, the willingness of small retailers to modernise their businesses in response to changes in the landscape as well as a growing digital ecosystem in Africa. The modernisation of the sector as well as the available opportunities will manifest differently in each area depending on the available infrastructure, however, traditional shops will continue to exist for the foreseeable future.

Road House Spaza Shop in KZN. Photo supplied

Evolving Retail Landscape

According to the BCG report, the retail landscape differs across the five markets as various factors, such as size of the sector, level to which the modern sector is developed, and other infrastructure related challenges, vary in each market. South Africa’s modern retail sector is mature with supermarket chains accounting for more than 70% of retail sales. Although the sector has less room to grow, expansion is expected with convenience store formats and in townships through franchise models, while traditional shops retain a very strong presence in townships.

Despite these variations, there is a common trend found across markets that is contributing towards the traditional shop’s increased momentum. These factors include small store modernisation, their readiness to diversify their operations in response to a hard climate, the expanding availability of digital solutions from technology start-ups, and supporting government regulations.

In addition, traditional retailers tend to be young, educated, digitally savvy and financially included. In South Africa, 76% of traditional retailers are male with an average age of 33. 85% have an education level higher than high school, while 86% have a smartphone and 74% have a bank account.

43% of South African traditional retailers noted that they experienced a wide range of challenges as reasons for why they had mixed feelings about the future of their businesses, and these included but are not limited to the Covid-19 pandemic as well as pressure from modern retailers. However, a rising number of new digital technology companies are delivering digital solutions that can help overcome obstacles and expedite their growth Locally, the start-up Flash provides e-payment services to more than 190 000 traditional shops, allowing traditional retailers to still be able to get business from customers who may not be carrying cash, making it the country’s largest network for informal retailers. This indicates that a market exists for more digital products.

Driving Future Growth

“Traditional retail’s future is local and increasingly modern with successful formats tailored to the needs of their communities and growth driven by domestic ecosystems of entrepreneurs, investors, and innovators,” says Zanazo.

Traditional shops will continue to modernise and improve the quality of their offerings while the innovation ecosystem will help them to achieve better efficiency through financial and business-to-business supply chain digital solutions. One of the ways traditional retailers can grow is by becoming part of the network of modern retailers. “Based on our analysis, around 60% of the traditional South African retailers that we spoke to are interested in affiliation or franchise models,” she says.

Locally, market share of hypermarkets, supermarkets and convenience stores will grow by around 4% in the next eight years through filling in the few remaining white spaces and expanding the spaza shop format in townships, reaching a market penetration of around 75% by 2030.