‘There’s so much nuance in the township economy. You have to be there to understand’: Mushambi Mutuma – Accenture Africa.
SIMON BROWN: I’m chatting with Mushambi Matuma, commerce lead for Accenture in Africa. Mushambi, I appreciate the time today. Informal market spaza shops – this is a giant sector. Do we have an understanding of how many of these spazas there are dotted around our country?
MUSHAMBI MUTUMA: Certainly we do. As mentioned in our recent research at Accenture, there are over 150 000 Spaza shops nationally in the informal sector.
SIMON BROWN: If you take it just as a number, that’s way more than the traditional sort of Shoprites and the Pick n Pays. They’re also very well located. They’re in the neighbourhoods, they’re in the taxi ranks, they are where the consumer is.
MUSHAMBI MUTUMA: That’s exactly it. And the other reality and what we found in our research is that 80% of the national population visits these on a daily basis. That’s about 40% of the total food spend yearly. So it’s a tremendous market size.
SIMON BROWN: That’s obviously giant. Are these being captured in official data – and I’m thinking Stats SA, unemployment, and the like. I mean obviously it’s informal, but it is massive.
MUSHAMBI MUTUMA: Yes. It actually has. Trade Intelligence released numbers earlier this year, and the market value of the size of this business is R178 billion. So it’s a market that’s not to be missed, no matter whether you’re in the corporate field or the formal independent market.
SIMON BROWN: FMCGs, fast moving consumer goods, do seem to be missing out to a degree. I appreciate their challenges with this, but my sense is they are probably not servicing the market well.
MUSHAMBI MUTUMA: Yes, the challenge related to kind of the spaza-shop space is that most of the spazas don’t have the luxury or access to buy direct from these FMCGs because of cost, because of access. So they typically buy [from] wholesalers, which leads to a lot of markups and a limited product pool.
And then from the brand perspective, as you mentioned, their biggest challenge is access to the townships or rural areas. There are undefined location issues, roads are not existent in some environments, and there’s also a safety element to kind of consider in some areas.
SIMON BROWN: You mentioned that they’re buying from the wholesalers and they’re getting a decent-ish price there, but there is still that markup. There’s also just the challenge of it. You can’t go and buy, I imagine, even a week’s supply of goods because where are you going to store it? How are you going to transport it?
MUSHAMBI MUTUMA: That’s exactly it. So they have to buy limited ranges, which typically leads to higher cost pressures at the end of the day, because they don’t have that access. A lot of those storekeepers leaving the store themselves for extended periods of time also has risks and components there. So I think that we have to reshape a new offering that’s a little more convenient and understands the challenges that a lot of these shopkeepers face.
SIMON BROWN: In the research you did mention the Boxer Bulk online, which in many senses is trying to solve this. They’re still a wholesaler, but I suppose they’re focusing particularly on that market.
MUSHAMBI MUTUMA: Yes, they are. They’ve rolled out a pilot right now. It’s only in KZN but they’re scaling it up, and what they’ve done is created an online store just for traders and spaza-store owners, and it gives them the ability to kind of quickly order, pay and then collect bulk purchases from their nearest Boxer. So this kind of scale is a perfect example of someone taking advantage of the opportunity, and I think that business is also kind of looking to take advantage of this. They need to set out aside some respective R&D [research and development] and explore and create these kinds of offerings to take advantage of the opportunity that exists for them.
SIMON BROWN: What are these spazas selling? Obviously it’s fresh produce and the like. I imagine it’s probably toiletries; it must extend to airtime as well. It’s almost an essential classic big retailer.
MUSHAMBI MUTUMA: That’s exactly it. It’s just a microcosm of that at a smaller scale.
“But you know, one of the other things that they do is that they’ve also started packaging their own assortments and mixed cases, understanding their consumers’ weekly buying behaviours and just the economics and the current climate.”
Of these traders 75% repack products into smaller units. So, for example, they’ll take three-litre cooking oils and decant those into 50ml jars, knowing that these households can only afford oil for the evening or for the week. And so they shift those.
Others will create breakfast packs. A spoon of Cremora, a tea bag, one egg, two slices of bread for R10. This is something restaurant groups could never offer; larger retailers could never think about decanting Cremora by the scoop.
And so I think FMCGs have to enhance their food offering and their product offering to kind of meet these needs. It’s already being done. Those brand experiences are already happening with or without them, and so they need to start catering for kind of what happens in this other world that they’re unfamiliar to.
SIMON BROWN: And truthfully, these spaza shops, one of their big advantages is they know their community. They are the community in a sense. A teaspoon of Cremora – we would never have thought of it, but obviously it’s demand.
MUSHAMBI MUTUMA: That’s exactly it. And I think that’s the challenge about entering this space, particularly for FMCGs and big brands if they’re trying to enter this without partnerships and without those relationships. There’s so much nuance in the township economy. You have to be there to understand, and partnering with existing players that are already in the space is kind of essential in order to take advantage of that nuance. Lots of townships are similar; Soweto and Khayelitsha will have similarities, but individually they’re completely different experiences. So if you try to enter that space without that knowledge or without those partnerships, you’re not going to have a lot of success.
SIMON BROWN: We spoke about Boxer, but of course they’re still a retailer, a wholesaler in a sense. Are the FMCGS engaging, are they trying, are they experimenting and talking to the spaza owners?
MUSHAMBI MUTUMA: Most certainly. We’ve got a number, as Accenture, a number of clients that are in this space, in the retail space, that are trying to have those conversations. Some of them are moving the dial, some of them are still waiting to see. So I think that the reality is everyone sees the size of the prize, they see that they need to enter this space, and they’re at varying levels. But I expect that in the next year or two, just because of the economic climate we’re going to see a lot more offerings particularly targeted at these communities.
SIMON BROWN: And it will be those different offerings. It’ll be a sachet of Cremora rather than a normal container.
MUSHAMBI MUTUMA: Potentially. And I think if they do that well, then they will kind of enhance. And I think that an enhanced product offering is going to be essential.
SIMON BROWN: A last question. Is this still a predominantly cash economy? Things such as, I’m thinking, the tap-to-pay, the Yoko – are those starting to move in?
MUSHAMBI MUTUMA: Cash is still king. Research shows that South Africans, particularly in the informal sector, are a little distrusting of banks. They think that they’re overcharged on transaction costs, that they don’t have much protection against scams. Money particularly takes too long to clear. So it is still an issue, particularly for low-value items. Even when Yoko exists and there’s an alternative payment message, customers still prefer using cash.
But we’re seeing the rise of a few new models like Shop2Shop, for instance, which allows traders who don’t have bank accounts alternative means to pay. So they can get paid by cards and so forth, and then they can use those as credits and convert them at different independent wholesalers.
I think we’re seeing more and more models like these arise, but we have to understand that cash still exists and it’s going to exist for a long time. So you have to go in there with a hybrid approach. We can’t replace it all, but we can slowly kind of adapt and evolve.
SIMON BROWN: Cash is king. It’ll change, but it’ll perhaps change quite slowly. There are a number in that space. You’re working on it, but there’s a long way to go.
We’ll leave it there. Mushambi Mutuma, commerce lead for Accenture in Africa, I really appreciate the insights.