The Market: in spaza shops and informal traders

There are an estimated 750 000 hawkers, spaza shops, shebeens and other informal traders across South Africa who, cumulatively, are responsible for R 30 billion a year of retail sales - an astonishing R 17 billion of that on food alone (BMR study)

• 75% of informal market consumers use spaza shops every day
• The average amount spent is R 175 per month
• Items most regularly purchased are milk, bread, and paraffin - but the complete range of products sell (from fresh produce, to cigarettes, to newspapers, cooldrinks and alcohol)
• 57% of the customers are women
• Spazas make up 10% of the South African retail spend

Many spaza shop owners would buy more stock but don't because of space limitations and the potential of stock losses due to damage, theft or spoilage by vermin and other pests. Customers would also buy more if the package sizes were better, brands were more focused and there was a better product range. But wholesalers and manufacturers complain that they don't know who to trust or how to identify market partners in the townships.

"Our sour milk product could be a big seller in the black townships. We are a small, black-owned dairy producer, and we think we could increase volume and capture more margin there than by competing with the big dairy producers for space in the supermarkets. We see the potential, but we tried once and stopped because our truck was robbed. Our biggest problem is logistics - which spazas to serve and how to distribute our products in a cost-eff ective way." - Akbar Dairy (TTO report, 2004)

Few spaza shops have direct links with product manufacturers. Coca-Cola delivers directly to some spaza shops who pay cash on delivery. Like SABMiller, they employ private security firms to accompany their delivery trucks. Smaller manufacturers cannot afford this and there are virtually no private distribution companies specialising in the townships.

Spaza shops get no special discounts or services from wholesalers and the owners have to go by taxi or bus to purchase stock bring the goods to their shops themselves.

Simple strategies that spaza shop owners have requested from wholesalers include:

• Dedicated wholesale areas aimed at spazas with product mixes most likely to sell
• Discounts that allow spaza shops to offer loss-leaders or gain a higher margin to create a good marketing mix
• Phone-in order system - prepacked for pickup or stock delivery directly to spaza shops to save them time

Consider also that, by selling direct to the retailers you reduce the need for your own retail and warehousing space, and also stock losses from a retail environment.

Opportunities offered by spazas include:

• Offering branded products and unit-size preferences for basic groceries is easier through spazas than through the major retailers
• Spazas offer a lifeline to wholesalers who are facing increased competition from large supermarket chains.
• New product suppliers who don’t have the market power to establish their own supply chains or attract the respect of the majors
• Existing or new independent distribution services who can link manufacturers and spazas
• Spaza shops may aggregate their purchasing power and become an informal version of the Spar buying group