Debunking the Spaza Market

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Informal trade and distribution data specialists, 5M2T (5 Minutes 2 Town) sets some common myths about the spaza market straight – and the facts could change the entire brand to market strategy.

By its very nature, informal trade is geared around guessing. The lack of definitive data and market research means that once your formalised sales and distribution data reaches the wholesale level, the rest remains a total mystery. Informal trade can fundamentally alter the fortunes of brands in South Africa, and yet market research remains limited to anecdotal evidence and assumptions which couldn’t be further from the actual truth happening on the ground.

“We’ve sat around many boardroom tables listening to brand owners, sales managers and even executive level management while they suggest what they believe or know what their informal market penetration is; what brands they compete with and which areas they are strongest in,” says

Stuart Smith, Operations Director at 5M2T. “Once we deploy on the ground, we discover huge gaps and some incredibly rich insights.”

These insights include a major correction on commonly misunderstood aspects of the spaza market:

 Spaza store owners do not do their own restocking
90% of stock replenishing is done by runners, buying groups, bulk breakers etc. Runners’ lists are prescriptive and buying groups and bulk breakers buy only what they know they can sell and earn their commissions on. So what’s the point of running wholesale promotions as an avenue to reach spazas?

 Spaza stores are often not the cheapest place to buy a product
In fact, a product can cost more at a spaza than it does at a high-end retailer in Hyde Park. This is because that product has changed hands up to five times before reaching a spaza shelf – each iteration adding on an additional margin. Everyone on the route-to-market is profiting and brands have absolutely no control or idea as to what is happening on the ground.

In fact, spaza owners are highly reliant on consumer demand. Price isn’t everything and brand loyalty is critically important. If the customers don’t want it, the spaza will not stock it. Dumping stock into wholesale will not land up on a shelf unless there is a consumer demand and regular purchase of it. The informal channel is not immune to the basic principles of supply and demand.

What works in Soweto, will not work in Soshanguve
The truth is there is no ‘one size fits all ‘approach. Even within huge categories like carbonated soft drinks, the purchasing, consumption and brand-loyalty behaviours differ hugely from one area to another and are amplified eve ngreater when one looks regionally.

You cannot assume that what works in Soweto, will work in Diepsloot or Mamelodi. The patterns are incredibly diverse.

On the contrary, political upheaval and acts-of-God aside, the spaza network is highly reliable and stable and many outlets have been open for decades and a part of the very fibre of the communities they service, even offering informal credit opportunities to regular customers.

Stuart Smith

E-mail: Reg@5m2t.com

Web: www.5m2t.com