GG Alcock: Informal economy keeping SA afloat – how foreign nationals cleaned shop

By GG Alcock*

GG Alcock
GG Alcock, author of Third World Child, White Born, Zulu Bred and Kasinomics.

While Shoprite, Pick & Pay, Spar and other formal retailers slug it out against each other for the purse of the consumer an invisible giant is awakening in the informal sector which is winning the purse and growing faster than the formal sector. This giant is not a single entity but a multitude of small informal shops who form an invisible matrix in the informal economy. Witness the rise of what I call “spazarettes”, where a spaza is a hole in the wall offering small run out and top up sizes, very much the forecourt of the township, the spazarette is more a superette albeit an informal one.

A recent survey Minanawe were involved in showed how competitive these spazarettes are to formal supermarkets…

On average, informal retailers are 7% cheaper than formal retailers on a basket of branded groceries. SBGS in conjunction with Minanawe Marketing has performed an informal retailer grocery price survey. The survey compares the cost of a basket of groceries at several informal and formal retailers. The survey revealed that shopping at an informal retailer could save the consumer between R37 (a 3% discount) to R104 (a 9% discount) on the basket of basket goods with a cost of R1 179 at a Shoprite in Naledi, Soweto. This saving would increase 5% to 11% for the same basket of goods if transport costs were considered. By shopping at an informal retailer which is generally closer to the general public, the consumer would not have to incur transport costs (R20 for a return trip) to a formal retailer. Source SBGS. Price analysis 2016 – Maize and bread volume growth still sweet

Recent Nielsen research shows that 20% of all money spent in SA is spent in informal stores, which sell goods to the value of R46 billion per year. And most importantly increasing at 7% per annum vs formal stores at 4%.

Read also: Maynard: Estimating SA’s informal economy – a hefty contribution

But why is the informal sector growing? There are a number of reasons but the main one is the cost of transport to the formal purchase point where public transport can cost up to 10% of consumers monthly income. Remember also that shoppers must pay the penalty of second seat for groceries. Limited inconvenient space can mean product damage and then there is the portability of your shopping to your home after the taxi has dropped you off. In recent research shoppers all included the cost of transport in their grocery budget, or calculated the saving of a special with the cost of transport included. This transport cost often negated the cost of the special. Although a formal retailer may only be 3 to 5 km’s away, this distance in a taxi will cost a minimum of R20 return, and no one is going to walk that distance when the informal shop is just around the corner.

But to understand why the foreign national has done so well we need to look at the spaza sectors recent history. South African owned spazas dominated the informal sector, but they were always a grudge purchase, as they were expensive, had little choice in brands or pack sizes, but were close, in your street and open long hours. Then the likes of Shoprite, Pick n’ Pay, Spar etc. entered the township with shops in close proximity to where people lived. This in essence killed the South African spaza and as recently as 6 years ago we predicted the death of the spaza as anything more than an emergency shopping point. It’s important to note that it was not the foreigner who killed off the South African trader but the formal retailers, contrary to heated xenophobic sentiment.

Read also: Mailbox: The informal economy – what government doesn’t know

So the foreigner entered the gap left by the dying spaza. He had a low cost of entry, renting the shop from the South African, who was ecstatic to receive anywhere from R2500 to R5000 a month for his dysfunctional spaza. This happened at a time when social grants grew dramatically (R125Bn was paid in grants in 2015) meaning a large amount of money suddenly entered the lowest income groups. The foreigner not only offered a great price, but he also offers interest free credit, who else offers this? In recent research by Minanawe shoppers claimed to use either the Somali or their Woolworths card to get food on credit in the last week of the month, who would have thought that Woolies and the Somali are the two credit sources for food for lower income shoppers!

This sector is huge, Minanawe put the informal FMCG retailers at 100 000 outlets split 70/30 between spazas and spazarette outlets. Of the total outlets about 70% are foreign run with the dominant groups being Somali, Ethiopian, Bangladeshi & Pakistani. Research shows that the average spazarette turns over between R85 000 and R200 000 a month.

An interesting fact however is that the prepared food sector, around about 50 000 outlets serving pap & vleis, isishebo & rice, kotas (the burger of the township) & vetkoek among other traditional meals are totally South African owned and run. The foreigners do not enter this market and South Africans will not buy food from foreigners. This is a huge sector competitive to the formal fast food sector. As an example of the scale of these township takeaways, Minanawe has introduced Parmalat Cheese slices successfully into the kota takeaway meal and Parmalat now sells almost R1 billion in cheese slices, the majority to kota makers.

The informal sector FMCG retailer and township takeaway markets are just two of many sectors in the informal economy which I describe in some detail in my book Kasinomics. I believe that when one quantifies the scale of the informal economy it could be a large part of what is keeping our economy afloat. Open your eyes to the invisible matrix of the informal economy, it is here to stay and may be taking over a shop near you…

  • GG Alcock is CEO of Minanawe Marketing, a specialist informal sector activations business and author of Third World Child, White Born, Zulu Bred and KasiNomics, African Informal Economies and the People Who Inhabit Them.