Loadshedding and the deterioration of services and infrastructure in South Africa are leading to a general feeling of despair in the country. Last week, the South African Reserve Bank highlighted the dire effect of power blackouts on our economy. In his first Monetary Policy Committee (MPC) statement of the year, Reserve Bank Governor Lesetja Kganyago estimated that ‘extreme loadshedding’ will lead to more than a 2% reduction in GDP growth this year. According to his GDP forecast, the South African economy would shrink by R100 billion this year. Loadshedding is wiping out projected growth and is estimated to be only 0.3% in 2023. PWC paints an even darker picture asserting that blackouts will knock five percentage points off GDP growth this year. It is hard to find silver linings in this dark cloud. Still, Simon Maritz, the founder of Fine Fragrance Collection, points out that South Africa’s manufacturing sector appears resilient and has found ingenious ways to mitigate loadshedding. Proof of this, he told BizNews, is that there are no empty shelves as we experienced during the Covid pandemic lockdowns. – Linda van Tilburg
Plastic bottle production company warned that production is going to drop by 50% due to loadshedding
In October last year, when the stage six loadshedding hit us, we were advised by the companies that make the plastic bottles for us – we pack our perfume in plastic bottles – that our production capacity would drop by half because you’re in the situation where Stage Six would bring 10 hours of no electricity a day. But at the same time, when you’re running production, you have to shut down the machines before the electricity is turned off, and then you have to turn them on again. So, you’ve got a 15-minute window on either side. Suddenly you start to get into 12 hours a day of no electricity or production. So, by implication, volume dropped by half, and there was nothing we could do. We asked the company that we buy the bottles from what the future holds. At the time, I told my business partner that this had dire consequences for South Africa because I couldn’t believe that the company that supplies us with plastic bottles was only phoning us and telling us that our production would drop by half. It must be everything. If that happens, what will happen on the supermarket shelves in a brief period of time – because the inventory in the system is just not sufficient to hold it for long enough. We saw it happen at the outset of COVID. The shelves were emptied in a couple of days when people saw the potential for a lack of goods on the shelf. So we were watching this to see what would happen.
Companies in mass production made another plan and adapted quickly
Over a period of time, six weeks went by, and we saw zero, absolutely zero stock shortages on the shelves. Then what happened to us? We linked back to the guys that make the plastic bottles for us, who said, ‘We’ve put in a 2.4-megawatt generator into the plants. So, we now go back up to full production.’ That made me realise every South African company that does mass production for the consumer must be solving the problem this way. Ultimately the electricity crisis in the production sector of our economy is being handled somehow because otherwise, we would be selling half the bottles we would typically sell. So, it was a fascinating story. I think the resilience of business in South Africa must be commended. We’re making another plan, and the adaptiveness was very quick.
The problem has been solved locally; there is no sign of shortages
If you think about it, in the consumer economy, everything comes in a packet. It’s either glass, tin, plastic, or paper. Everything comes in a packet, and every one of those packages requires masses of mounting heat to make it. So, by implication, you need a massive amount of electricity. For a moment, let’s think about something like two-litre milk containers. You can’t ship those from China. It’s cost prohibitive. You are shipping a 40-foot container; how much are you going to put inside? You’d have to send a fleet of ships. I mean, it’s just as simple as that. So, the problem has been solved locally. You cannot solve the packaging problem externally. Of course, there are some things like aluminum tins that are manufactured offshore. When we used to do glass bottles, and perfume bottles, those were manufactured in India and in China. They don’t manufacture them here. But packaging, plastic packaging, in particular, is something you have to make locally. It needs massive amounts of heat, and massive amounts of energy. That problem has been solved otherwise. I may be wrong here, but when I go to my supermarket shelves, I see absolutely no evidence of shortages on the shelf. Zero. Nothing.
I can certainly say with us it is, we are back to where we were before. The company where we buy the plastic bottles is putting these generators in, and we are back to where we were. I’m assuming this must have happened to everybody; otherwise there would be shortages on the shelf.
Can you grow a business in the present climate?
Well, we have. I mean, we’ve been extremely lucky. The perfume industry is an interesting industry just by its nature. I have some thoughts with regard to how we ended here. We sell a generic product of an original that, on average sells for R1,500 in the marketplace. We sell that same product for R60. So, we are talking about 4% of its value. By implication, when you do that and we are the ones that have come into the market at a price point that we think is just unbeatable for anybody else. So, we have seen massive growth. I’ll give you an idea. In June last year we did 85,000 units. In November last year we did 445,000. We were doubling almost every month. So, to answer your question, you can if you’ve got the right product, but it’s not a one size fits all.
Cash-strapped consumers are turning to generic perfumes, but growth has come from the bottom end of the market
What we’ve seen in the marketplace is more important to us. At R1,500, you’ve got a product that ultimately appeals to the top-end audience. So we’re talking about 10% of the population. In South Africa, you’ve got minimum wages sitting at R4,000 or R4,500. You cannot then go and spend one third of your salary on a bottle of perfume. It’s not possible. So, what we have found is that when you’ve brought that product that is R60, which is identical to the product that’s selling at R1,500 without the fancy glass bottle, you start getting consumers from the bottom end coming in that have never had the luxury of smelling nice before. Our growth is coming from people that weren’t playing before rather than people that are swapping … there is an Afrikaans saying ‘goedkoop is duur koop.’ People just cannot believe you that you can go from R1,500 to R60, and it can be the same product. It’s just not possible. It’s never been done, and can’t be done. So, there is disbelief at the top end of the market. At the bottom of their market, the people come in, find the product works, and then use it. So, I think, yes, there’s no doubt the economy is affecting people. But we’ve experienced our growth from people coming in from the bottom to buy products they couldn’t afford before.
No shopping centres, selling through agents put R720 million into the hands of ‘not so rich’
When we were pushed out of the distribution channel, we had to look for an alternate distribution channel. A bottle of perfume costs R2 to make. So, what we did, was we set up an agent business, a direct selling business, where anybody can come to us. They buy what we call a starter pack of sixty bottles of perfume so that we don’t get the bridge between retail and wholesale, and they can then go and sell it to their community, whatever it is. Just to put this in perspective, since we launched this on the 25th of September (2022), we have sold over a million bottles of perfume to the agent business, who then distributed it. Of our orders, over 70% have been reorders. That means that people have bought the starter pack and gone and sold it. If we get right what we are anticipating doing and we sell 2 million bottles of perfume next year, we will put R720 million into the hands of the not-so-rich in South Africa. That is something that I think is amazing. For me, that actually has become the raison d’être of our business. I think poverty is the greatest scourge of humanity. Suppose we can play a part in alleviating poverty in any way. In that case, I think that far more than getting a bottle of perfume into every adult’s hand, if we can try and alleviate some of the poverty in South Africa and then globally, I’ll die a happy man.
- “Four things to be done to stop loadshedding” – Finance Minister Enoch Godongwana at WEF 23, Davos
- The effect of loadshedding on SA’s healthcare sector – just how bad can it get?
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