The rise of e-commerce is a trend with the potential to transform South Africa’s formal independent retail and wholesale sector. However, while some of the major players are offering online ordering and delivery, they are coming under pressure from a new generation of online-only businesses offering a more sophisticated bundle of goods and services.
Between South Africa’s highly consolidated corporate retail space and the teeming informal sector lies the formal independent channel – increasingly in competition with the former, continuing to serve the latter, and contributing 30% of total FMCG retail turnover, at R194bn.
The five major players in this space are Unitrade Management Services (UMS), Elite Star Trading (EST), the Devland Group, IBC, and Kit Kat Cash & Carry – although the sector is far less consolidated than the corporate space, with more room for the rise of new players. The sector is divided into three operating channels – cash & carry, hybrid (servicing retailers and consumers alike), and the smaller midi wholesalers. With over 1,500 stores across a range of formats, the independent trade is a key route to market for suppliers of FMCG goods in South Africa.
While the independent trade has remained surprisingly resilient – for example, weathering the arrival of corporate retail in the townships post-apartheid – it operates under continuous pressure, and has always needed to both adapt and innovate to survive. The post-COVID landscape – with the opportunities it provides and the challenges it presents – has proved no exception. One such opportunity is e-commerce, which some of the formal independents are embracing with the same vigor as has the corporate trade.
E-commerce – falling under the ‘kitchen-sink’ approach of omnichannel retail – has long been the province of the formal trade globally. In South Africa, Pick n Pay and Woolworths, and much more recently Checkers, have led the charge towards the adoption of the traditional online ordering and delivery model. Now some of the formal independents are following suit.
One such is Gauteng-based KitKat Cash n Carry, which offers free delivery within two days on online orders of R500 and over, for both its customers in the informal trade, and for consumers. Another is the TFS group, which opened its e-commerce store in 2020, offering everything from groceries to hardware, to pre-paid communication cards.
Such businesses typically provide a ‘bare-bones’ service, with a no-frills homepage geared to ease of use, and an emphasis on value – essentially the approach they take in their bricks and mortar stores. This approach is also taken by some of the online-only players in the space, like Yebo Fresh, an online grocery retailer providing a growing basket of brands to consumers across the Western Cape and Gauteng. Perhaps a greater competitive threat to the formal independent sector, however, is the approach taken by Vuleka, an online-only business which provides a range of innovative services, serving as a virtual buying group for its retail customers, providing micro-warehousing in the communities it serves to facilitate last mile delivery, and providing analytics and financial services to its members.
“There’s no doubt that the rise of e-commerce presents great opportunities for the major independent retailers and wholesalers,” says Mac Mabidilala, Product Head at Trade Intelligence. “However, the competition is fierce from this new generation of online providers, which aren’t tied down to physical stores and are able to innovate quickly and bring new products to the trade.” He points to the example of Twiga Foods in Kenya, which has evolved rapidly and now offers a range of distribution services to a network of 140,000 stores across the country, with online ordering, a bidding system for small farmers wishing to supply the retail trade, financial services for small businesses, and even a range of private label products.
In 2021, e-commerce sales in FMCG totaled R8.1bn – just 1.2% of the market - but growing at 23.3% - down from its lockdown highs of over 90%, but still significant. In South Africa’s highly competitive shopper-led FMCG market, the expansion of e-commerce allows for market share gains. Some of this growth comes at the expense of sales cannibalised from expensive brick-and-mortar assets.
To capitalise on the growth opportunities on offer, the formal independents need to leverage their existing infrastructure and networks to gain market share and take on a new generation of nimble and hungry competitors. Some of these businesses, it seems, are getting the message.
E-commerce: What’s Driving Growth?
Three factors drive the growth of e-commerce in the formal independent space. The first is the opportunity: the sector’s retail and consumer shoppers alike are demanding the convenience and value of online delivery. The second is competition – as the informal trade has continued to thrive, the businesses serving it continue to proliferate, with a growth in number of third-party providers, like direct distributors, many of whom are building an e-commerce offering into their services. Finally, there is the means: with smartphone penetration in South Africa at around 60%, there is a growing appetite among consumer shoppers and retail shoppers to acquire their goods and services online.
For in-depth insights into this essential channel, click here to learn more about the recently updated Trade Intelligence Formal Independent Channel Report.
About Trade Intelligence
Trade Intelligence is South Africa’s leading source of consumer goods retail research, insights and capability-building solutions, focusing on the industry’s corporate and independent retailers and wholesalers. We are the trusted voice of the sectors in which we operate, aggregating information to amplify knowledge, grow capability, and enable collaboration that drives profitable trading relationships and sustainable sector growth.