Euromonitor encourages SA retailers to broaden their horizons
Retailers in SA need to expand their scope from the middle class to include poorer consumers, who make up half the population, according to market research provider Euromonitor International.
In sub-Saharan Africa, 20% of the population have an annual income of less than $2,500. This is expected to rise to 30% by 2030. SA has the largest income divide in the world, with more than half of the population earning less than $2,500 a year.
According to the Euromonitor report, the focus for retailers has been on the rising middle class, but the lower segments of the population hold "untapped potential", with poverty in SA expected to remain unchanged by 2030.
"Thus, companies should adopt a stable, long-term strategy for these countries."
It was a difficult market to benefit from, said FNB senior economic analyst Jason Muscat, adding that consumers were very price sensitive and looking for value for money.
"SA’s prospects at creating more jobs are dire, even with 2.5% growth, and people are more dependent on social grants, with social support often lower than inflation. The poor are getting poorer," he said.
The poor also pay a disproportionate amount of their salaries on food and transport.
But the report states that discretionary expenditure among the poor is the highest for the sub-Saharan region.
The report states that poorer consumers pay almost the same amount for alcoholic beverages and tobacco as for housing in SA. Products that retailers could target at this segment include smaller pack sizes in food and drinks, alcohol and tobacco.
Daniel Isaacs, an analyst at 36One Asset Management, said: "This is a strategy used to make things more affordable for consumers and it can also be used to mitigate some price increases that come with inflation."
He explained that operators like Shoprite had increased their footprint in poorer areas.
"Shoprite have also run promotions on things like store baked breads, for example, to bring down the price of bread," said Isaacs.