The food and grocery market in South Africa were valued at over 49 billion USD in 2018 and is expected to grow to over 63 billion USD by 2023. While competition between various players in the market is fierce, due to limited product differentiation and negligible costs associated with switching between sellers, the food and grocery market continues to be dominated by four key chain grocers, Shoprite (which includes Checkers and OK Foods), Pick n Pay, Spar and Woolworths. We all have our favourite grocery store, the “go-to” shop for our daily needs. Whether it be Shoprite, Checkers, Pick n Pay, Spar, Woolworths or OK, we know where to go to get what we need. We also have a backup plan, which usually includes another large chain grocer, for when our go to shop is out of stock on products we need. The question is, how many of our backup plans include the independent grocer in our local neighbourhood? How many times have we driven by these small and independently owned shops without even considering going inside? Why is that? What would convince us to take a look inside, and give the small grocer a chance? Would it help if you knew that shopping at your large go-to retailer may be hurting the economy on the whole?
 MarketLine Industry Profile, (February 2020). Food and Grocery Retail in South Africa. www.markeline.com
Displacement of Small and Independent Grocers
Contextually, the grocery retail sector is characterised by low levels of economic regulation and openness of markets. While an open market means that it is “technically” easy for anyone to open a grocery store, the reality is that the chain grocers have an established presence and recognised brand that most small and independent grocers must overcome in order to carve out a share of the South African market. As a result, the openness of the sector has enabled the increased expansion of chain grocers which has in turn lead to the displacement, or marginalisation, of small and independent grocers. These marginalised small businesses are primarily family operated and mainly service the community in the immediate and surrounding area. Given their size and relatively small customer base, these businesses struggle to compete. Not only are they unable to access prime locations in local shopping malls, which would increase foot traffic through their shops, they are unable to compete with the advertising spend of their large competitors (SME Food Processor). Combined, South Africa’s chain grocers spend billions of Rand annually on advertising, inundating South Africans with radio, television, online and print adverts, alerting prospective shoppers to their weekly sales and product offerings. At the same time, a recent report issued by the Competition Commission has found large chain grocers are guilty of shutting small and independent grocers out of lucrative locations inside shopping malls. As a result, the market share of the chain grocers continues to increase, while small and independent grocers risk financial ruin.
 Miyelani Mkhabela, (May 29, 2020). Transforming the Grocery Retail Market to be More Inclusive to Emerging Grocery Stores. IOL.
Dominant Control of Market Share
The food and grocery market in South Africa has exceeded 49 billion USD and will continue to increase year on year. At the same time, the competition amongst the four main chain grocers for market dominance is fierce, even though they already control the lions share. As they compete, not only do they challenge each other for their market share, they leave less and less market share for small and independent grocers. A report issued in 2019 by the Competition Commission, which explored unethical behaviour of the four big chain grocers, and the impact of their dominance on small and independent grocers, found that the four grocers alone controlled 72% of the market share. This finding was refuted by David North, an executive at Pick n Pay accused the Competition Commission of miscalculating the four chain-grocer’s actual market share, suggesting that the four grocers controlled only 30% of the market, thus leaving 70% for small and independent grocers. However, the Competition Commission is not the only organisation to find that the four chain grocers controlled the majority of the grocery retail market. These numbers should be concerning, not only because they minimize small and independent grocers’ viability but also because they have a negative impact on South Africa’s Small and Medium (SME) food processors.
 Competition Commission South Africa, (November 25, 2019). The Grocery Retail Market Inquiry Final Report.
 Johan Coetzee, (July 19, 2019). Mixed Reaction to Grocery Retail Market Inquiry’s Preliminary Findings. Competition Chronicle, p4.
Shutting SME Food Processors out of the Market
Most SME Food Processors in South Africa are unable to sell to the four main chain grocers. Rather, they rely on non-traditional routes to market, selling to informal traders and spaza shops, farmers markets and produce markets and finally, small and independent grocers. Many SMEs lack the capabilities needed to supply the required volumes, consistency, quality and costs of supplying to supermarket chains. Private standards and skewed buyer power exercised by large supermarkets further add to the difficulties in supplying them. As a result, many SME food suppliers either cannot supply, or actively avoid selling through the main supermarket chains (SME Food Processors).
As the competition within the grocery sector intensifies and the four key chain grocers cut costs through vertical expansion the options for SME Food Processors to take produce to market diminishes. What impact will this have on the future of South Africa if emerging farmers find themselves selling to a diminishing market? Will they lose their motivation to produce? How will this impact the broader push for economic empowerment?
Transformation and B-BBEE Status
All four chain grocers trade on the JSE and therefore need to meet certain B-BBEE levels. They do, but barely. Shoprite maintains a B-BBEE level 7, Pick n Pay maintains a b-BBEE level 7, Spar maintains a B-BBEE level 5, and Woolworths maintains a B-BBEE level 7.
The BEE ratings of the four chain grocers are shockingly low. Possibly because they still make large profits and get repeat business from customers despite their lack of concern for economic transformation. A further review of their senior leadership presents a picture that is overwhelmingly in favour of one racial group, while black ownership is also well below 50%. Surprisingly, Woolworths has the largest percentage of black ownership with only 33.84% of the company owned by black shareholders. In a country where transformation, or lack thereof, is frequently used as ammunition to attack and malign, it is surprising that the South African buyer willingly accepts and supports this tragedy, day after day, driving the profits and market share of the chain grocer higher and higher.
The mouth that criticizes the lack of transformation, is the same mouth that supports the ever-increasing share of South Africa’s untransformed grocery sector. Perhaps the narrative needs to shift. Perhaps we need to stop supporting business that resist transformation and begin supporting the many small and independent grocers already owned by previously disadvantaged people groups. Perhaps we should stop asking why is transformation taking so long, and start asking, why do we continue to support corporate giants that do not transform?
Options exist- buying local isn’t a fad, it’s a necessity. Proudly SA runs an annual buy local campaign, calling upon us all to contribute to putting the South African economy and South Africans in general, back to work by making “buy local” choices. Unemployment figures now stand at a record high of over 30.1%. Our economy is in dire straits while the debt levels of the country, and those of its citizens have escalated to dangerous levels. Through consciously and purposefully choosing to buy local, YOU can make a difference. Slowly and together, we will give small and independent grocers a larger footprint in the South African grocery sector. As the market share of chain grocers reduces, SME Food Processors will find more market opportunities, thus driving growth in SME Food Processing businesses as well as growth in emerging farmers. However, most importantly, you will become an active participant in driving transformation in South Africa.
Imagine, if instead of buying your pastries from a Pick n Pay bakery you bought it from the bakery down the street. Imagine if instead of buying meat from the Checkers butchery, you bought it from the independent butcher in your neighbourhood. Imagine if instead of buying your fresh produce from Woolworths, you bought it from the privately owned grocer around the corner. Imagine playing an active role in the economic transformation of South Africa. Imagine being a catalyst for the change you want to see. Imagine.
Black Owned – Voting Rights
Pick n Pay
Voice of Reason
Darren Harder is a co-founder of hoodgoods, an online convenience shopping and delivery service based in Johannesburg, South Africa. Darren is both a humanitarian and hoodgoods’ voice of reason.