A spaza shop in Alexandra. Picture: MARIANNE SCHWANKHART
A spaza shop in Alexandra. Picture: MARIANNE SCHWANKHART

Informal retail channels such as spaza outlets are becoming an increasingly important distribution opportunity for brands, particularly in light of the fact that SA’s informal economy is estimated at 18% of GDP, according to Adcorp economist Loane Sharpe.

It’s a space, however, that has largely been neglected by many brands, where distribution is dominated by large, national retailers. It makes sense: these channels are measurable and easy to manage, with the informal retail sector proving to be more challenging in terms of the complex landscape and wide geographical distribution, not to mention a complicated route to market.

That said, noticing a wealth of untapped opportunity within the informal retail sector, 5M2T has launched and piloted a distribution network that makes this sector accessible for a host of brands.

Director Stuart Smith says the company is named for the township slang term “five minutes to town”, a description of someone who is smart and savvy and can get things done quickly. In the eight months that 5M2T has been operational, the company has been distributing products in the over-the-counter pharmaceutical, tobacco and FMCG categories within this sector, visiting 60,000 geolocated spaza outlets per month, all over the country. These outlets are serviced daily by trained staff, Smith explains.

The company’s success is based largely on its understanding of this complex environment, key to which is servicing spaza owners on their own terms. “These owners don’t operate in the same way as a large retailer, who would place a bulk monthly order – even if there is a cost saving advantage to buying large quantities. Rather, not having the storage space or infrastructure, and with theft being a threat to goods in storage, spaza owners prefer to place smaller orders, more frequently, as stock moves off their shelves,” Smith says.

It’s an entirely different approach, not only to the distribution of products, but also in terms of how to market brands. Smith maintains that brands must begin to acknowledge these channels and their specific way of operating, as this market is simply too large to ignore.

On-trade and in-store activations, a marketing method which has been successful in larger retailers, he argues, is a largely ineffective way to get brands stocked in spaza outlets, particularly if they are new.

What many marketers don’t realise is that spaza owners themselves seldom do the actual shopping, but send runners with comprehensive lists to shop on their behalf. Runners are not authorised to deviate from the lists, so providing them with in-store samples is a relatively futile exercise if a brand is hoping to see its products stocked on spaza shelves.

A far more effective method, Smith says, is to take the product directly to the spaza owner, thereby creating an opportunity for personal engagement. “This provides not only an additional distribution channel, but also a chance to educate the owner on your brand,” he says. He adds that FM2T also provides point of sale and supporting marketing material, which is welcomed by spaza owners.

To address the issue of measurement in informal channels, FM2T has developed a mobile application to provide for sales reporting in these channels. The app also has the ability to provide monthly, quarterly or annual market research on the spaza outlets and surrounding businesses.

What distinguishes this research is its sample size. Smith explains that, traditionally, market research into the informal sector has worked on small sample sizes, and lacks the understanding of the nuances in the market. However, having the research conducted by people on the ground, who visit and stock the spazas daily, insights are based on real interaction and engagement and the sample sizes (generated from visiting 60,000 stores every month) is an accurate reflection of the purchasing behaviour, penetration and the presence of parallel imports.

Ultimately, given SA’s constrained economy, and the resulting stagnation in the retail sector, informal retailers have the ability to inject much needed life back into the industry, provided brands understand how they operate.

The big take-out: Stuart Smith, director at FM2T, believes the informal retail sector is the answer to SA’s stagnating retail market. However, brands need to take a different approach to marketing and distributing their products if they are to succeed in this complex environment.

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