The independent FMCG market (represented by unlisted wholesalers and retailers) remains a key area of opportunity for suppliers in South Africa. The dynamic nature of this market sector, within a context of macro-environmental factors impacting South African retail, is increasing in relevance as a route to market to the informal retail channel.
The same changes that are creating opportunities within the formal independent sector are also exposing this part of the retail ecosystem to threats from competitors in adjacent sectors. With the blurring of retail channels, corporate retailers are infiltrating the independent trade through wholesale dealing, as well as through wholesale and retail formats. For the informal retail sector, the threat comes from the collaboration of smaller route-to-market players, such as midi-wholesalers that are capitalising on growth opportunities. The formalisation of the informal retail sector presents a significant threat to the buying group sector, as immigrant traders support each other in the formation of buying, distribution and selling co-operatives, and reveal increasingly sophisticated trading aptitudes.
The threats from competitors are igniting innovation and change within the formal independent sector, which is constantly reinventing itself to stay ahead within a challenging economic and trading environment.
Key observations that reflect changes within the formal independent sector include:
- A growing presence of retail operations within a wholesale space, with very few pure wholesale operators remaining. The ‘hybrid’ model of wholesale and retail trading combined provides margin advantages in support of revenue generation
- Following the trend of convenience retailing in response to changing shopper needs, formal independent wholesalers are expanding their reach through franchise retail outlets
- Vertical integration in the form of redistribution and distribution centre (DC) capacity is becoming the norm with large operators, as this provides efficiencies through scale
- Collaboration and integration have become a lifeline which buying groups are increasingly turning to for survival
With value becoming a necessity to all South African traders and shoppers, ‘best price’ is the primary driver for traders and shoppers when selecting their wholesaler and retailer. The emphasis on value is creating new opportunities for smaller, cost-effective secondary brands and private label offerings, as the cash-strapped South African shopper is no longer brand loyal.
Digital advances in terms of e-commerce and route-to-market prospects are emerging within independent retail, as live reporting and real-time data are providing opportunity for data-driven decisions and differentiation.
The growth seen within the formal independent channel will continue to enable opportunities for suppliers, especially within a retail market that is being disrupted by economic pressures, digital innovation and the COVID-19 pandemic.
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