Perfect storm hits retailers in South Africa

 ·24 Aug 2022

Several factors have recently culminated in a perfect storm of threats that South African retailers have to defend against, says Howard Barratt, principal consultant at Retail Directions, a retail management platform with Cotton On as a principal client.

War, extreme weather, power cuts, looting, and connectivity issues, are core issues facing the industry in South Africa currently, while belt-tightening by consumers amid soaring inflation is also a major concern.

Annual consumer price inflation (CPI) reached 7.8% in July 2022, Statistics South Africa (Stats SA) said on Wednesday. This was a 1.5% increase from the 7.4% recorded in June 2022.

The agency said the main contributors to the 7.8% annual inflation rate were food and non-alcoholic beverages; housing and utilities; transport; and miscellaneous goods and services.

Food and non-alcoholic beverages increased by 9.7% year on year and contributed 1.7 percentage points to the total CPI annual rate of 7.8%.

In July, the annual inflation rate for goods was 11.5%, up from 11.0% in June; and for services, it was 4.2%, up from 3.9% in June.

“A recent spate of unexpected events – both local and global – have had a severely negative impact on the sector, serving as a reminder that retail businesses should be prioritising resilience and agility as key investment areas to mitigate risks and foster the ability to react and pivot when the unexpected happens,” said Barratt.

The week-long July riots spread across the Gauteng and KwaZulu-Natal provinces and resulted in the damage and destruction of 1,800 stores across 200 malls, wiping R50 billion from the economy.

The government’s recent reintroduction of load shedding has not only brought about operational challenges but at Stage 6 – the most severe level of rolling blackouts yet – the prolonged and frequent power outages are estimated to cost the country’s already ailing economy about R6 billion a week.

Additionally, the war in Ukraine has resulted in soaring food and fuel prices – with local petrol and diesel prices shooting up by close to 40% in recent months.

Grocery retailers respond

Moneyweb analysis showed that the country’s largest retailers have tried to shield consumers from rising food prices.

Shoprite Group, Pick n Pay, and Woolworths have all reported internal selling price movements below the CPI food inflation rate. Pick n Pay reportedly maintained its internal selling price inflation at 5% for the 18-week period ended 3 July.

Woolworths said food price movement was at 3.5% for the 52 weeks ended 26 June, while it kept underlying product inflation at 3.9%, and Shoprite reported internal selling price inflation for the 52-week period ended 3 July at 3.9%.

NielsenIQ’s analysis of the local market is its latest Shopper Graphics report which reveals interesting broader changes in the in-home consumption and shopping behaviour of households.

It shows that while there has been a steady increase in value per buyer over the past two years, this has not been accompanied by a rise in volume/unit sales – a clear indication of inflationary pressures at play.

It also found that local consumers are shopping less frequently and at fewer retailers, but when they are in-store they are spending more per trip with increased overall basket spend is being driven by LSM 1-4 due to the introduction of social grants.

In the face of cost pressures, consumers are not buying more but are paying more for less. This is reflected by total basket value sales (excluding liquor & tobacco) up by 7.6% but with a very sluggish 1.1% increase in the number of units sold over the same period.

Read: Warning for shopping centres in South Africa as retail sales fall

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