Changing Shopping Patterns Emerge Among South African Consumers

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JEREMY MAGGS: South African consumers shelled out an astonishing R637 billion on FMCG [fast-moving consumer goods] last year. However, despite this enormous figure, growth appears sluggish. The latest NIQ State of the Retail Nation report reveals a shift towards private label brands, bulk purchases, and discount shopping as consumers respond to economic pressures.

Moreover, it’s noteworthy that smartphone sales have declined, dragging the tech and durables sector into flat growth territory. What implications does this hold? Is it a warning to retailers, or simply a new norm in our shopping behaviors?

I’m now joined by Zak Haeri, managing director at NIQ South Africa, to delve into this data and what it could mean for the retail sector in the short to medium term. Zak, despite a vibrant festive season, retail growth slowed last year. Why isn’t consumer spending keeping pace with inflation?

ZAK HAERI: That’s a great question. The truth is we’ve been experiencing relatively high inflation while average wages haven’t kept up. Consequently, people have, on average, less disposable income. There are variations depending on which Living Standards Measure (LSM) segment we look at.

Fundamentally, people don’t have more money to spend.

That situation has seen some changes lately. For example, the amount of funding distributed through grants has been increasing. There’s also the two-pot pension windfall, which has injected considerable money back into consumers’ pockets. Nonetheless, wages overall haven’t been aligning with inflation.

As a result, something has to give, and it manifests as consumers withdrawing from certain categories, focusing on retailers perceived to offer value, often in the form of loyalty points or similar incentives. Our data highlights these consumer responses.

JEREMY MAGGS: Consumers are likely shopping more strategically and cautiously. You mentioned earlier that private label brands are outperforming the market by approximately 7% growth. Do you see this as a lasting change in consumer buying habits or merely a temporary cost-cutting trend?

ZAK HAERI: That’s an intriguing question. Even when the initial pressure that caused a habit change dissipates, some consumers will continue with the newly adopted habits because they’ve found value in them.

Once consumers are compelled to shift, a segment will stick with that change as it proves to be beneficial.

We believe this trend is here to stay. The penetration of private labels is already significant in several categories, and while it may not escalate drastically, we might observe private labels entering areas with lower penetration. What’s crucial here is that private label brands aren’t just competing on price; they carry a compelling brand narrative as well.

Take note of how advanced South African retail is compared to global standards, including the execution of private labels. Many private label brands are now hard to differentiate from traditional brands. It’s as much about branding as it is about pricing.

Read: Walmart private-label products coming to SA stores

JEREMY MAGGS: Zak, loyalty programs and promotions are well-loved and continue to drive sales. However, isn’t there a potential risk that retailers could become overly reliant on discounts to boost revenue?

ZAK HAERI: This is an ongoing concern. Both retailers and suppliers must consider how much they promote and engage with these programs. In many cases, participating in promotional activities feels obligatory for retailers and suppliers—it’s more of a defensive strategy than a proactive one; if you’re absent from the market, you risk losing share afterward.

Hence, it’s a delicate balancing act. We’re cultivating a promotion-driven culture, and it necessitates ongoing investment.

Managing this balance is challenging. For instance, last year’s Black Friday was impressive, showing a 12% year-on-year growth in unit sales—exactly what we want to see.

Listen/read: Black Friday index reveals surging holiday sales shift

It appears that discounts were modest but offered across a wider range of products. So, there’s still plenty of potential to benefit from promotions, but it’s a risky strategy if you choose to avoid crucial promotional periods entirely.

JEREMY MAGGS: Lastly, I noted at the beginning that smartphone sales are down, with the market contracting by about 2%. Do you think we are nearing a saturation point in mobile adoption?

ZAK HAERI: That might be part of the scenario. However, when we review shipping volumes, they remain fairly consistent year-on-year. Therefore, we may simply be experiencing a longer product lifecycle.

Consumers are retaining their devices for extended periods. Additionally, the operating systems now have longer support durations than they used to.

Another factor at play is the influx of low-cost smartphones in South Africa, making those brands increasingly visible and accessible.

As a result, the average price point for the sector has significantly decreased. Consumers are purchasing smartphones—they’re just often opting for cheaper models. Furthermore, innovation plays a crucial role in the tech and durables sector, and smartphones are no exception; many consumers find the latest innovations, like 5G, unaffordable.

JEREMY MAGGS: And that provides insight into our spending patterns. Thank you very much, Zak Haeri, managing director of NIQ South Africa.

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