At the recent PMA Fresh Connections conference in Cape Town, Maryla Masojada, MD of Durban-based Trade Intelligence gave an insightful review of the South African retail environment and the role of the fresh produce industry within that.
Maryla Masojada of Trade intelligence delivering an overview of the South Africa retail sector at the PMA Fresh Connections conference
The South African food industry’s worth was valued at around R560*bn (TI estimate) last year, although it should be noted that some non-edible groceries are included within this definition. The formal and corporate retail channel makes up the majority of this sector, with about 60% market share, and roughly 2,400 new corporate retail stores added over the last five years (the majority of these falling within the formal convenience retail channel). It is important to note, however, that it is in the informal independent retail convenience channel where we are seeing good volume sales growth.
“Every single retailer has ‘best in fresh’ somewhere in their strategic focus areas for the upcoming 12-18 months,” says Ms Masojada, adding that there has been an increase in shelf and floor space allocation for fresh produce at all levels (low to upper income outlets) of the retail sector, across all LSM (Living Standards Measure) levels in South Africa.
Partly, this is driven by consumers and their increased health awareness, locally as it is globally. “I heard someone say we need to remember that getting sick is expensive,” she says.
The other reason for this attention paid to fresh produce, is that retailers make more margin from fresh produce than they do from non-edible groceries. “The commodities market is highly competitive and our retail sector is equally competitive,” she says, pointing out that reports of the supposedly huge profit margins made by South African food and grocery retailers are exaggerated – to understand where the margin lies, you need to look at the full value chain. “It’s a highly competitive sector which drives down pricing which drives down food retailer margins.”
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Unlike other consumables like electronics or appliances, the fresh produce supply chain is largely local, which gives retailers more manoeuvring space. As Ms Masojada put it in her PMA presentation: “South African retailers are focusing on becoming ‘masters of the local, whilst leveraging economies of the regional, national and international’.”
Fresh produce is particularly dependent on cold chain management, logistics and general supply chain efficiency. There is currently a massive investment in the supply chain, especially as South African retailers continue to expand into Southern Africa. The hunt for retail margin has seen an impact on the fresh supply chain, with grocery retailers looking to extract margin, and manage quality through cold chain management, an area in which Woolworths Food has excelled. She continues: “Supply chain efficiencies are the last frontier and whoever cracks it, will be the winner of the future. If you get it right, the margins will come.”
Some grocery chains have chosen the vertical integration route, acquiring upstream fruit and veg wholesalers and re-distributors, such as Massmart’s FruitSpot (Massfresh) and Shoprite’s FreshMark, whilst others buy locally, either directly from regional farmers, or negotiated each morning at the local farmer’s markets.
In terms of stores, Masojada provided numbers for the footprint of South African retailers throughout Africa. Shoprite Holdings had 207 stores throughout Africa in 2010; by 2016 that had risen to 380. All other retailers have also opened more retail outlets: the Spar Group had 100 (2010), now 147; the Pick n Pay Group has risen from 90 to 122. Woolworths Holdings held 90 stores across Africa by last year.
Margin profitability is increasingly effected through sustainability practices in farming which can also have a positive impact on the vital aspect of continuity of supply: an example mentioned at another PMA workshop by James Lonsdale (national fresh produce manager at Spar) was that of hydroponic, highly water-efficient lettuce production under cover (thereby also protected from weather events like hail) which ensures even supply throughout the year. Furthermore, this project was underwritten by the retailer, which comes back to Ms Masojada’s concluding remarks: “Price will always be an issue but there can be phenomenal results if the retailer and the supplier collaborate. Longterm strategic alignment is absolutely critical. Collaboration at this level is driving behaviour into the future and it’s as yet early days in South Africa.”
Trade Intelligence tracks the South African retail sector through continuous conversations with both retailers and suppliers. Trade Intelligence’s report at the PMA conference was met with admiration by international attendants because of its level of detail within an encompassing scope that would be very difficult to achieve in larger economies.
For more information:
Maryla Masojada
Trade Intelligence
Tel: +27 31 303 2803