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The complexities of SA FMCG ‘wholesale’

In the greater FMCG trade ecosystem, the formal independent wholesale channel is sandwiched between the manufacturers and their cool, innovative brands on the one hand, and the plucky spaza owners and informal traders on the other. Both much more photogenic and PR-worthy.
A word association exercise based on ‘wholesale’ probably generates words like warehouse, dark, grubby, bulk, pallets, forklifts. Not sexy. 
But sexiness aside, this channel is a critical enabler for the informal independent market (those spazas and small traders), as well as an increasingly attractive and important retail choice of household shoppers. 

The channel is an increasingly difficult one to define and keep track of.

At Trade Intelligence we define formal independents as ‘formal’ to distinguish them from the informal market (also known as the township market, e.g. spaza stores). We refer to them as ‘independent’ because they’re not part of listed corporate groups like Pick n Pay or Shoprite Holdings. It is tempting to use the shorthand of ‘wholesalers’, but although we ourselves are guilty of using this shorthand, it is more complicated than this. Wholesalers don’t sell to household shoppers, and formal independents are increasingly doing just this, either welcoming household shoppers into their ‘wholesale’ stores (‘hybrids’) or opening new supermarket-style stores as part of their store portfolio. Wholesalers are also not only ‘independent’, with the Shoprite Group recently venturing into the space with the purchase of various wholesale assets. 

And then there are the midi-wholesalers, which are effectively formalised buying groups of spaza stores, and even these can be formal (if they buy directly from manufacturers) or informal (if they source stock from other wholesalers). 

To complicate things even further, there are currently formal independents supplying corporate stores frustrated with corporate systems that are unable to keep their shelves stocked. 
And in terms of monitoring their performance, since they are ‘independent’, they are under no obligation to publish any financial statements, so we need to rely on what scant information does get made available, and then informed estimates.

But formal independents are feeling the pressure. 

Loadshedding continues to put strain on budgets both in terms of CAPEX investment in long-term solutions and short-term expenses such as the fuel required for generators.

Shoppers – whether shopping for their households or their businesses – are under increasing financial pressure, forcing all retailers to compete more aggressively on price, compromising already fragile margins. The formal independent players have historically had good relationships with stokvels, too, but even stokvels are playing harder to get when it comes to choosing where to spend their carefully hoarded billions (yes, billions).

The encroachment of corporate groups such as Shoprite into this previously largely independent space also changes the dynamic, as do initiatives such as the one announced by the Gauteng Government whereby it claims to have setup it is own warehouses and distribution centres in Katlehong and Mamelodi to service local spaza shops (as well as a financing model). 

No matter the dynamics or pressures, though, this channel remains robust and resilient, and we salute its grit and contribution to the overall retail economy.

Trade Intelligence has been monitoring and reporting on this channel for nearly two decades and publishes an annual report with the latest insights into this ever-evolving channel. The latest Formal Independent Channel Report is available now – see here for more information.


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. 

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