Research Reveals Changing Shopping Trends Among South African Consumers

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JEREMY MAGGS: South African consumers spent a staggering R637 billion on FMCG [fast-moving consumer goods] in the previous year. Despite this impressive number, growth seems to be lagging. The latest NIQ State of the Retail Nation report indicates a shift towards private label brands, bulk buying, and discount shopping as consumers react to economic challenges.

Additionally, it’s important to note that smartphone sales have dropped, pulling the tech and durables sector into stagnant growth. What does this signal? Is it a warning for retailers, or is it merely a new trend in our shopping habits?

Joining me now is Zak Haeri, managing director at NIQ South Africa, to explore this data and its potential implications for the retail industry in the near to medium future. Zak, despite a lively festive season, retail growth slowed last year. Why isn’t consumer spending keeping pace with inflation?

ZAK HAERI: That’s a pertinent question. The reality is that we’ve been facing relatively high inflation while average wages haven’t matched this increase. As a result, consumers have less disposable income on average. There are differences depending on the Living Standards Measure (LSM) segment we consider.

Essentially, consumers don’t have more disposable income.

Recently, some changes have been observed. For instance, the amount of funding through grants has been increasing, along with the two-pot pension windfall, putting considerable funds back into the hands of consumers. Nevertheless, overall wages still haven’t kept pace with inflation.

This means adjustments are necessary, reflected in consumers limiting their spending in certain categories and gravitating towards retailers perceived to provide value, often through loyalty points or similar incentives. Our data illustrates these consumer shifts.

JEREMY MAGGS: It seems consumers are becoming more strategic and cautious in their shopping. Earlier, you mentioned that private label brands are outperforming the market by about 7% growth. Do you see this as a lasting change in consumer purchasing behavior or just a temporary cost-cutting measure?

ZAK HAERI: That’s an interesting point. Even when the initial pressure that prompted a change in habits subsides, some consumers will maintain their new habits because they’ve found them valuable.

Once consumers are driven to change, a portion will hold onto that shift if it proves beneficial.

We believe this trend is enduring. Private labels are already significantly penetrating various categories, and while the growth may not be explosive, we may see them entering areas where they currently have lower penetration. It’s essential to understand that private label brands are not just competing on price; they also present a compelling brand narrative.

Consider how advanced South African retail is compared to global standards, especially regarding the execution of private labels. Nowadays, many private label products are difficult to distinguish from traditional brands. It’s as much about branding as it is about cost.

Read: Walmart private-label products coming to SA stores

JEREMY MAGGS: Zak, loyalty programs and promotions are quite popular and continue to influence sales. However, isn’t there a risk that retailers might become too dependent on discounts to enhance revenue?

ZAK HAERI: This is a valid concern. Both retailers and suppliers need to evaluate how much they promote and engage in these initiatives. In many instances, participating in promotional activities feels obligatory—it’s more of a defensive maneuver rather than a proactive approach; by not participating, you risk losing market share.

Therefore, it’s a delicate balancing act. We’re fostering a promotion-driven culture that requires continuous investment.

Finding the right balance is tough. For example, last year’s Black Friday was remarkable, with a 12% year-on-year increase in unit sales—just what we want to see.

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

It appears that discounts were modest yet extended across a wider product range. Hence, there’s still ample opportunity to leverage promotions, but it’s a risky strategy if retailers choose to skip crucial promotional periods altogether.

JEREMY MAGGS: Finally, I noted earlier that smartphone sales have declined, with the market contracting by approximately 2%. Do you think we are approaching a saturation point in mobile adoption?

ZAK HAERI: That could indeed be part of the picture. However, when we examine shipping volumes, they remain relatively consistent year-on-year. So, we might just be experiencing a longer product lifecycle.

Consumers are holding onto their devices for longer periods. Additionally, the operating systems now have extended support durations compared to before.

Another element influencing this is the rise of low-cost smartphones in South Africa, leading to increased visibility and accessibility of these brands.

Consequently, the average price point in the sector has dropped significantly. Consumers are buying smartphones—they’re just often opting for more affordable options. Moreover, innovation is critical in the tech and durables arena, and smartphones are no exception; many consumers find the latest advancements, such as 5G, to be out of their financial reach.

JEREMY MAGGS: That certainly gives insight into our spending behaviors. Thank you very much, Zak Haeri, managing director of NIQ South Africa.

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