South Africa’s retail sector continues to be an anchor of the country’s economy, playing a significant role in job creation and contributing towards GDP growth. According to a 2023 report by the Labour Research Service, the retail industry is the second-largest employer of all economic sectors, only surpassed by the government.
The same report highlights the retail sector’s considerable economic contribution, accounting for nearly 20% of South Africa’s GDP in 2022.
Within this sector, the Labour Research Service found retail titan Shoprite Group to hold the largest revenue share of the industry in 2022, sitting at an impressive 27%. Shoprite’s annual reports reveal extraordinary growth, with its annual revenue increasing from R24.8bn in 2003 to R215bn in 2023. Additionally, the group has grown from 1,581 stores in 2014 to 4,543 stores in 2023.
This success is not the result of mere luck. Shoprite’s customer-centric business model has remained laser-focused on maintaining a large footprint of stores that operate as “needs-tailored” hubs (as opposed to the costly centralised distribution model used by other competitors). Think of how Usave caters to a market different from that of Checkers Hyper.
Shoprite has been joined by another retail giant, geared to make even more waves in the sector. The US-based technology behemoth Amazon has finally landed on South African shores with the recent launch of its e-commerce website in the country. It enters the South African retail market with its own capabilities, suggesting a likely threat to smaller retail groups.
Amazon enjoys its buying power due to its capital, which has been reinvested into its distribution network, aided by controlled profit from its low margins. On top of this, Amazon is equipped to use market data to create highly competitive in-house brands in the backyard of local retailers, while holding significant capital to instantly bolster new products into the market.
While the threat of Amazon’s presence is now unavoidable, Shoprite is already pre-empting this by expanding its operations by piloting a new version of its profitable on-demand grocery store app, Sixty60, to allow customers to browse for more than 10,000 larger products from its Checkers Hyper outfit, ranging from outdoor gear, small appliances, electronics, and more, while retaining its 60-minute delivery turnaround time. Like Takealot — but on steroids.
Shoprite serves more than 1-billion customers annually, with more than 7-billion products sold, and already boasts a 29-million membership in its Xtra Savings loyalty programme, ensuring its access to any retailer’s greatest insurance policy: customer data.
While Amazon is a well-known data heavyweight, it would take time for its e-commerce operation in South Africa to build up its customer information to match the levels of current e-commerce players, but once it does accumulate it, coupled with the tools and infrastructure it has to analyse the data for customer behaviour and trends, it may become an unstoppable force in the sector.
How are South Africa’s other retail groups preparing for increased competition from both Amazon and Shoprite? The African market offers attractive spending power in the mid- to long term. So we can expect more foreign multinationals to arrive here.
South Africa’s retail market is fiercely competitive because consumer spending generally doesn’t fluctuate significantly, as the majority of people have very limited disposable income. Retailers have to fight for this small pool of spending, and competition among sector players is heavily influenced by convenience, price, brand awareness, and trends.
South Africa’s retail market is fiercely competitive because consumer spending generally doesn’t fluctuate significantly, as the majority of people have very limited disposable income
Understanding behavioural psychology and what drives buying behaviour is crucial to navigating this space. This is where Amazon has demonstrated experience in meaningfully extrapolating consumer data to understand purchasing behaviour and trends in spending. Its data-driven approach to retail enables it to prepare a new line of in-house products (which it knows will sell well), securing the entity a lucrative profit.
Yes, Amazon has access to more data on how global trends follow from one region to another, but Shoprite certainly has more information than Amazon has on the African consumer. It will be interesting to ascertain whether Shoprite and Amazon are noticing the same patterns. And if so, which data set will provide better insights and the ability to react timeously to coming trends?
Do they know whether consumers will spend up to 50% of their income online in 10 years’ time? And who will dominate this share of the e-commerce market? Do they have further insights into how disposable income will be distributed across our increasingly global digital economy?
Developing a sense of humility among South African-based retail groups will be fundamental to co-operating in protecting local profit and the freedom to do business locally, especially when a giant international player has been given unfettered access to our local digital economy.
• Novitzkas is co-founder & chair of Specno, which designs and builds apps and other digital products.
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