In an intriguing twist, traditional trade (TT) retailers are outpacing the dominant modern trade (MT) sector in terms of growth. This shift can be attributed to changing consumer purchasing habits, which are influenced by lower disposable income and changing preferences.
NielsenIQ (NIQ) South Africa’s recent insights, released on Monday, provide a comprehensive assessment of sales performance across 17,000 stores in the fast-moving consumer goods (FMCG) industry. According to NIQ SA, the traditional trade sector, which includes non-branded superettes and spaza shops, grew by an impressive 23.6% in the year ending June 2023. This equated to an annual expenditure of R187 billion, a significant increase over the previous year’s R151 billion.
In comparison, the modern trade sector grew by 14.7% during the same time period.
“Independent retailers have successfully commanded a substantial share of the market and now account for R27.40 of every R100 in FMCG sales,” says Gareth Paterson, NIQ SA’s market leader. This reflects changing consumer preferences as well as the long-term impact of Covid-19 hard lockdowns on spending patterns.”
One of the key reasons for independent retailers’ success is their intimate understanding of local consumers, which gives them a competitive advantage over their modern trade counterparts. These informal retailers can respond quickly to consumers’ immediate basket needs and adapt their product offerings to meet demand.
Furthermore, NIQ SA emphasises that by embracing route-to-market strategies, independent retailers have capitalised on manufacturers’ pursuit of profitability. This optimisation has resulted in significant cost savings for independents by streamlining their supply chain.
Modern trade retailers, on the other hand, face difficulties competing for consumer spending due to rising operational costs caused by unprecedented load shedding. This barrier makes it difficult for them to compete with independent retailers who can offer lower prices. According to NIQ SA, over half of the top 200 food and beverage items became more affordable in the traditional trade sector during the fourth quarter of 2022.
Even during major promotional events such as Black Friday and December 2022, prices in both modern and traditional trade have converged, with the latter consistently offering lower prices even when no promotions are in place. This pricing trend demonstrates traditional trade outlets’ inherent agility, allowing them to quickly adapt to consumer demands by adjusting their stock based on consumer preferences. The importance of this consumer-centric approach is emphasised by reth Paterson, who states, “This responsiveness to consumers’ needs has become a key factor driving its growth.”
Recent developments, such as JSE-listed food manufacturer Tiger Brands’ strategy aimed at the informal retail sector, demonstrate the growing recognition of this sector’s potential. NIQ SA believes that manufacturers must continue to engage with the thriving informal sector in order to understand consumers’ basket needs and devise appropriate solutions in order to maintain their industry relevance.
Paterson emphasises the importance of brands strategically focusing on traditional trade sectors in order to remain competitive and ensure long-term growth. As this trend gains traction, businesses that align with consumer needs while leveraging the agility of traditional trade outlets will thrive in this changing market landscape.