The next big battleground for Woolworths, Shoprite and Pick n Pay in South Africa

The competition for dominance in South Africa’s grocery retail sector is intensifying, and analysts say that online convenience, premium brands and healthier product options are the keys to success in the next big battleground: high-income earners.

While McKinsey & Company’s 2024 State of Grocery Retail in South Africa report has shown that there is strong demand for discount retail in South Africa, one of the group’s other major findings is that there is rising demand for convenience in the premium segment.

This means that more high-income shoppers are turning to online channels, an increasing interest in premium products, and a greater preference for healthier, sustainable food options.

Looking at the first trend, McKinsey & Company note that there is strong momentum in online grocery retail in South Africa, with sales growing by 54% annually since 2019 to reach R23 billion in 2023.

This growth is expected to continue, fueled by rising consumer interest and low market penetration.

“Our 2024 consumer survey indicates that 26% of South African consumers plan to increase their online grocery shopping this year, significantly higher than in global markets, where interest is stabilising,” said the group.

The report notes that convenience drives online shopping, with 43% of consumers citing time saved from not visiting a store as a primary reason, and around 30% appreciating the flexibility to shop when it suits them.

As such, most of South Africa’s biggest grocery outlets have (and often very successfully) jumped on and reinvented the bandwagon in the country. This includes that of Checkers Sixty60, Pick n Pay ASAP!, Woolies Dash, and SPAR2U, to name a few.

The McKinsey & Company report notes that unlike many markets worldwide, several online grocers in South Africa are already achieving positive profitability as their business models mature.

This success is partly due to lower operating costs, such as wages for picking and delivery staff.

“While online sales are still less profitable than offline sales, retailers are increasingly using their online channels to attract new customers, especially in the higher end of the market, which improves the economic equation for these businesses,” said the consultancy group.

 Appetite for premium and healthier products grows

“South African consumers are under significant pressure compared with consumers in other countries, but there are signs that their appetite for premium products is starting to recover,” said McKinsey & Company.

The proportion of lower-income earners planning to buy premium food products rose by ten percentage points to 26% in 2024, and among higher-income earners, it surged by 19 percentage points to 37%.

This trend is significantly higher than in other markets, such as Europe, where only 8% of high-income consumers intend to buy more premium goods in 2024.

The battle for market share is intensifying, with Trade Intelligence’s Corporate Retail Comparative Report revealing that Checkers is now outperforming Woolworths Food in South Africa.

Checkers reported a turnover of R38.5 billion across 268 stores, averaging R144 million per store—2.4 times higher than Woolworths Food’s R22.4 billion turnover from 369 stores, which averages R61 million per store.

Overall, Checkers’ average turnover is 2.6 times greater than Woolworths, attributed to its strategic push into the premium retail market traditionally dominated by Woolworths.

The report notes that despite the inflationary environment, the food-to-go market, which includes ready-to-eat meals and takeaway options, has outpaced the overall grocery category, expanding at a 46% compound annual growth rate (CAGR) between 2017 and 2023.

This segment is projected to continue growing faster than the general grocery market, with an expected 8% CAGR during the 2023-2028 period compared to 5% for the overall grocery sector.

This trend is driven by more workers returning to offices post-pandemic and increasingly busy lifestyles.

The consulting company said that grocery retailers have a window of opportunity to innovate and expand their food-to-go offerings, which could help them protect their market share from competing food service providers like restaurants.

On top of this, the report notes that the number of South African consumers aiming to eat more healthily and purchase more organic products is increasing.

In 2024, 70% of high-income consumers and 60% of low-income earners in South Africa expressed their intention to prioritise healthy eating and nutrition, up from 65% and 54%, respectively, in 2023.

Younger age groups, particularly Gen Z and millennials, are more inclined towards healthy and organic brands than older generations.

“High-quality, fresh, and local produce, as well as healthy foods, present significant opportunities for premiumisation. Our 2024 consumer survey found that 53% of high-income consumers and 55% of low-income consumers are willing to pay more than the market average for high-quality fresh produce,” said McKinsey & Company.

Similarly, 52% of high-income and 57% of low-income consumers are willing to pay extra for healthy food products.

However, products from small local stores attract the least interest, with only 28% of high-income and 29% of low-income consumers willing to pay more for them.

Read: The shops taking on Pick n Pay and Checkers in South Africa – and winning