OPENING a new business is both an exciting and terrifying experience, with about 65% of new enterprises in South Africa failing within the first two years.
Before setting up shop, it is vital to know one’s potential customers — how much they earn and what they spend their money on.
“It is important to know how big the cake is and how much of the cake could be yours,” said Fernridge Consulting MD Sybrand Strauss, who has helped big companies such as McDonald’s, Spar and Nando’s open new stores for the past decade.
By using geographic information systems and “on-site” collected data, Mr Strauss and his team can assess the market potential of any user-defined area and provide information on competitors, consumer lifestyle preferences and the number of households in the catchment area by income group.
To demonstrate, Mr Strauss used his data to show that the Rosebank Gautrain station — and not Sandton’s, as expected — has the most retail potential within a 3km radius.
The area around Rosebank station has a R5.8bn-a-year retail market, whereas the area around Sandton has a retail market of R4.5bn. The data shows that even though Sandton has more people in the high-income bracket, earning salaries above R25,000 a month, Rosebank has higher volumes of people, increasing the potential turnover of businesses.
“Often the data goes against common expectations,” said Mr Strauss. “For instance, one of our recent reports determined that the area in Pretoria with the biggest market for fast food was Mamelodi and Soshanguve — and not a more affluent area like Faerie Glen.
“When it comes to townships the average income and market size can be grossly underestimated, which is why our data also takes into account backyard dwellers and shacks.”
In Cape Town, the richest suburbs are Steenberg Golf Estate and Constantia, closely followed by Clifton. In Mpumalanga, eMalahleni and Middelburg have a combined retail market potential of about R1bn a year.
To begin collecting data, Fernridge takes aeronautical photos of an area and marks off separate housing units. It then collates census data, property values and on-site surveys, including interviews with sample groups of residents.
Mr Strauss and his business partner Stephen Walters, who both have a background in urban geography, have identified a market gap for accurate and up-to-date information on the market potential of specific geographic areas.
The company has data on 65 African cities outside South Africa. Mr Strauss said Fernridge’s Africa business unit is growing at 30% a year.
Mr Strauss and Mr Walters run an online platform, AfricaEye.co.za, designed to provide demographic and expenditure data that is useful for smaller businesses and start-up entrepreneurs.
“This way there is a low barrier to entry and entrepreneurs can gain access to appropriate data to mitigate risk. Even the lady that wants to open a flower shop in Boskruin can now access reliable market information,” said Mr Strauss.
The reports, which can be bought for as little as R1,000, can also be used to bolster a business plan, he added.
* This article was first published in Sunday Times: Business Times