The Wholesale and Retail of Food Industry in South Africa 2023

Introduction

The wholesale and retail of food in South African generates well over R1. 2tn in revenue, and even more including the growing but hard to quantify informal food trade. Food retail is concentrated and dominated by four national, vertically integrated companies that control more than half the market. Facing reducing returns in a mature, saturated South African urban market and African investments that have produced mixed results, retailers have invested in strategies to lower prices, differentiate stores and find new markets in small towns, rural areas, and townships. Food wholesalers, independent retailers, and informal traders, under pressure from this retail expansion, have adopted new strategies to attract consumers. The biggest risk to the success of these responses is the ability of consumers to continue to spend in a low growth, high inflation and high unemployment environment.

Opportunities

Enforcement of the findings of the Competition Commission’s grocery retail market inquiry and the agreements of the Agricultural and Agro-Processing Master Plan can open opportunities for smaller players. Expanding convenience market, forecourt retail, and pre-prepared meals. Market share growth among affluent consumers. Private label brand growth. Rapid population growth, urbanisation, and rise of the middle-class in regional Africa to boost demand for food and modern shopping. Rapidly expanding online shopping demand, initiated by the pandemic Roll out of discounters, franchises, and corporate spaza shops to grow formal market participation.

Outlook

Wholesale and retail of food in South Africa needs a rise in consumer spending after three tough years in which unforeseen events have dampened economic recovery from the pandemic. While the industry is resilient, well-capitalised, has strong leadership, and is innovating to protect margins and stimulate consumer demand, it needs a recovery in economic growth and wealth. The threat of a global recession, political turmoil, and the electricity crisis make it unclear whether consumer spending will increase. The continued pace of innovative investments in the supply chain, services, store footprints, online retail and new store formats will be vital in securing a positive outlook for the industry.

Report Coverage

This report on the wholesale and retail of food in South Africa includes comprehensive information on the state and size of the sector, the major players, developments, food and other input prices, economic factors, the presence of South African companies on the continent and the development of online delivery. There are profiles of 20 companies including the major retailers Shoprite, Pick n Pay, Woolworths, Spar and Massmart and wholesalers, cash and carry and buying groups including Africa Cash and Carry, Devland Cash and Carry, ICC Buying Group and Unitrade.

Strengths

A large and growing informal sector with strong linkages to formal wholesale supply. A strong regional presence in Southern Africa. Capability for rapid increase in ecommerce trading. Growing population and stable food demand. Relatively high formal sector participation and extensive supermarket footprint throughout the country. Resilient companies with expertise and experience operating in a challenging trading environment. Very well-developed and efficient supply chains and logistics networks.

Threats

Continued poor economic growth and rising unemployment is affecting consumer spending. Digital disruption from innovative online retailers. Growing competition in all market segments. Large retailers’ investment exposure to risks associated with volatile African markets. Traders facing rising input and operating costs but being unable to pass costs onto price-conscious consumers.

Weaknesses

Highly dependent on economic growth to support consumer spending beyond essential purchases. Increasing competition and relatively high barriers to entry in urban areas and shopping centres. Informal sector very sensitive to shocks and vulnerable to supply interruptions. Lack of skills. Market is increasingly mature and saturated. Relatively thin trading margins with profit growth primarily supported by streamlining and cost-cutting.