Unlocking economic power of spaza shops demands innovative products

Spaza shops are the backbone of many underserviced township and rural communities in South Africa, personifying the very spirit of free economic trade valued by small, medium, and micro enterprises (SMME).

But growth in the sector has remained largely stagnant since 2008, pointing to the need for greater business support to unlock their full economic potential, says Richester Foods Managing Director Dr Hussein Cassim.  

According to the latest figures by the Small Enterprise Development Agency (SEDA), South Africa’s small businesses are estimated to employ some 64% of the country’s workforce and contribute over a third to national Gross Domestic Product (GDP). Of these, businesses operating in the trade and accommodation sector – including spaza shops – represent as many as 39%, demonstrating their importance as engines for job and wealth creation.

Yet the number of SMMEs had only grown from 2.019 million in 2008 to just 2.36 million by the end of September 2020, pointing to significant ongoing challenges in the sector, notes Cassim.

“The pandemic proved catastrophic for many businesses in this sector, but these numbers also emphasise the ongoing need for greater support and access to market opportunities,” he says. 

“But it’s not just up to government to solve the problem – there is also a meaningful role to be played by manufacturers and established brands in helping spaza store owners overcome some of their unique challenges in order to grow and thrive.” 

Notably, many spaza shops are operated by “survivalist” owners selling basic goods with low margins. These store owners further struggle to compete with large wholesalers and retailers that leverage their greater purchasing power to secure lower prices for products, placing them at a competitive disadvantage.

“Spaza shops are vital to underserviced areas, selling essential items such as bread, milk and treats to local households.

“But they also operate in a highly competitive environment, and if their prices don’t remain low enough, the risk is that buyers will simply walk up the road to another spaza shop, or save to shop at a large retailer.

“This places added pressure on their margins, limits their market penetration potential, and prevents them from growing and expanding their businesses.”

In response to these challenges, Richester Foods has pioneered a wide range of affordable, quality sweets that aim to tempt the tastebuds and pockets of both adults and children alike, while still generating healthy margins and profits for hawkers and spaza store owners.

For example, its latest creation, the new Coco Bongo chocolate with a distinctive, creamy centre, is available for the sweet price of just R2.50 each. The chocolate is locally manufactured at the company’s factory in Centurion, Gauteng, which already produces over eight million chocolates per month for delivery across the country.

Despite its low-cost, however, Cassim states that the R2.50 price tag includes the potential for sellers to make up to 100% profit on each chocolate bar.

“By producing our products locally and remaining focussed on ensuring that our chocolates and sweets are manufactured at attractive prices, we hope to play a meaningful role in driving value for local entrepreneurs and helping our clients to grow their businesses,” he says.

“As a proudly South African company, we believe that it is our responsibility give back to local communities by helping to stimulate other businesses and job creation within the food value chain – especially in such difficult times for the country.”