PRICE remains the most important consideration for consumers, which puts pressure on food retailers to ensure low prices do not compromise environmental and social standards and, ultimately, bring about the collapse of local suppliers, according to research by investment managers Arisaig Partners.
Foreign investment interest in Africa — and the developing world in general — is increasing, spurred by Africa’s growth amid a recession in traditional investment markets.
Infrastructure and private equity were seen as two of the better ways in which to access Africa’s growth, says SinCo principal Graham Sinclair.
Nicky van Hille, MD of consulting company The Moss Group, says the "ability and willingness" of large companies and the government to incorporate small businesses into their supply chains is "possibly one of the most important issues requiring (the sector’s) attention".
However, pressure on retailers to maintain low prices meant that "there have been times when retailers have pushed suppliers out of the market".
Stanlib retail analyst Theresa Heath says larger suppliers have larger economies of scale, which translate to lower prices. Also, there is less administrative burden in dealing with larger suppliers. However, as sustainability has "moved up the agenda", especially from an investor point of view, large retailers have tried to help small suppliers. One of the advantages was a better hold on product quality.
The South African retail sector is dominated by Shoprite Holdings, Africa’s largest food retailer. Among listed companies, Shoprite has more than a third of South Africa’s food market share, Pick ’n Pay has 30% of the market, the Spar group 30%, Woolworths 8% and Massmart less than 2%. However, a significant 22.5% of total consumer expenditure on food and groceries is made at informal or independent retailers. These informal and independent retailers supply 81% of SA’s households and are expected to drive growth in the food and grocery sector, according to the Arisaig research.
"There is certainly room for growth within the small business sector, which, despite only contributing 30% to the country’s GDP, currently employs between 70% and 80% of the employed population," the report, Building a Sustainable South African Food Retail Sector, says.
The five major companies are expanding into Africa.
Growth in sub-Saharan Africa has been 4% every year since 2000.
The effect of climate change on South Africa will worsen problems, and responding to it is a "complex and challenging feat" that is important for the longevity of the retailers, says the report.
Wealth distribution in South Africa is among the world’s most unequal, and is worsened by high unemployment and lack of education, which renders many poor South Africans, especially the young, literally unemployable. Simultaneously, a growing middle class is fomenting urbanisation and putting pressure on already overtaxed infrastructure.
With maintaining low prices firmly in mind, South Africa’s retailers are looking for cost savings elsewhere and have often found them in paying attention to environmental, social and governance (ESG) considerations, says Ms van Hille.
This is a boon, because within these considerations lie some of the greatest challenges to the sector’s future sustainability.
Arisaig analyst Rebecca Lewis says the business case for incorporating ESG issues into corporate decision making is compelling because "it all goes into shareholder value".
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