JOHANNESBURG - By its very nature, the informal trade is geared around guessing. The lack of definitive data and market research means that once your formalised sales and distribution data reaches the wholesale level, the rest remains a total mystery.
The informal trade can fundamentally alter the fortunes of brands in South Africa, and yet market research remains limited to anecdotal evidence and assumptions, which couldn't be further from the actual truth happening on the ground.
“We've sat around many boardroom tables listening to brand owners, sales managers and even executive level management suggest what they believe or know their informal market penetration to be; what brands they compete with and which areas they are strongest in,” said Stuart Smith, the operations director at 5M2T.
“Once we deploy on the ground, we discover huge gaps and some incredibly rich insights.”
These insights include a major correction on commonly misunderstood aspects of the spaza market:
Myth 1. Spaza store owners do their own restocking. Ninety percent of stock replenishing is done by runners, buying groups and bulk breakers. Runners’ lists are prescriptive and buying groups and bulk-breakers buy only what they know they can sell on and earn their commissions from. So what's the point of running wholesale promotions as an avenue to reach spazas?
Myth 2. Spaza stores are usually the cheapest place to buy your product. In fact, a product can cost more at a spaza than it does at your favourite high-end retailer in Hyde Park. This is because that product has changed hands up to five times before reaching a spaza shelf, with each iteration adding on an additional margin. Everyone on the route to market is profiteering and brands have absolutely no control over, or idea of, what is happening to their products on the ground.
Myth 3. Spaza store owners simply look for the cheapest option. In fact, spaza owners are highly reliant on consumer demand. Price isn't everything and brand loyalty is critically important. If the customers don't want it, the spaza will not stock it. Dumping stock into wholesale will not land up on a shelf unless there is a consumer demand and regular purchase of it. The informal channel is not immune to the basic principles of supply and demand.
Myth 4. What works in Soweto will work in Soshanguve. The truth is there is no one-size-fits-all approach. Even within massive categories such as carbonated soft drinks, the purchasing, consumption and brand-loyalty behaviours differ hugely from one area to another and are amplified even greater when you look regionally. You cannot assume that what works in Soweto will work in Diepsloot or Mamelodi. The patterns are incredibly diverse.
Myth 5. The spaza market is too unpredictable to execute a long-term distribution strategy. On the contrary, political upheaval and acts of God aside, the spaza network is highly reliable and stable and many outlets have been open for decades and a part of the very fibre of the communities they service, even offering informal credit opportunities to regular customers.