Power crisis creates a globally unprecedented environment for SA retail sector

Overview - The current power crisis is creating a globally unique microclimate for South Africa’s manufacturing and retail sector and this unprecedented set of circumstances has created interesting shifts within the local market.

Key results:

The latest NielsenIQ State of the Retail Nation analysis based on NielsenIQ’s benchmark *Retail Measurement Survey (RMS) - which recorded monthly and annualised data to the beginning of January 2023 - shows that the South African FMCG sector achieved R547bn in sales in 2022; a 14% increase over the previous year.

• Alcohol rebounds off the back of successive bans - Amongst the Supergroups of product categories measured by NielsenIQ Alcoholic Beverages showed the largest increase of 36% versus 2021 but this must be viewed within the unique context of nil monthly bases in previous years during South Africa’s successive alcohol bans.

  Alcohol producers have therefore also fared well over the last 12 months. Within the Top 10 local manufacturer rankings, South African Breweries, Distell and Diageo all achieved more than a 30% increase in sales in 2022 versus the same 12 months in 2021.

• A high-velocity price environment - In terms of total value sales growth over the 12 months ending December 2022 unsurprisingly Cooking Oil achieved the highest increase in annual value sales at 34% followed by Bread at 26% Flour at 21% and Maize meal at 17%.

  The increase in sales value for cooking oil is understandable given that it experienced the highest levels of inflation in 2022 sitting at 38% in (September 2022) Sep'22 compared to the previous year (NIQ South Africa Price Inflation Tracker). The effects of this spike in prices can be seen in the 3% decline in annual unit sales and a 5% decline in the latest measured month.

  Bread also experienced extremely high inflation of 17% in the third quarter of 2022 (versus Q3, 2021). This is understandable if one considers that the electricity costs for mills and bakeries are four times more expensive when running on generators. This makes it exceedingly difficult to absorb those additional costs when operating in a low-margin category like bread.

  As a result, there has been a definite move by consumers toward Rice and Maize Meal, which have experienced lower inflation and have a longer shelf life (NIQ Homepanel Full Year 2022 vs FY'21)

Key trends:

• The power push - There is no doubt that smaller retail manufacturers and outlets are struggling due to having to absorb emergency power generation costs. Despite this, manufacturers ranked between the Top 20 to 50 in sales value performance - including a number of smaller and local manufacturers - contributed an incremental 14% growth above fair expectation toward the overall FMCG (excl liquor and tobacco) sales value growth.

  NielsenIQ attributes this to smaller players being less reliant on global supply chains and thus being able to more quickly adapt to the power plagued local environment.

• Small but smart - Another small but smart pocket of positivity is amongst Traditional Trade outlets such as spazas, which might have something of an advantage under the current dire circumstances. They predominantly stock- shelf staples and don’t generally have large fridges. Their lack of reliance on them makes them more agile in terms of the categories they stock.

  NielsenIQ has picked up increased favouring of these outlets given that their locality is convenient for their target consumers. "For this market, convenience is all about shopping down the road. These shoppers are trying to avoid the steep transportation costs associated with trips to the store,” explains Nooy.

• Staples are stable - In terms of the changes in consumer spending, there is also an interesting shift to shelf staple goods. This contrasts with consumer responses to earlier global recessions - such as that seen during 2008 - when consumers stockpiled perishables and frozen foods by storing them in a household freezer. This allowed consumers to use them as long-life goods through controlled consumption.

  “Our RMS data tells us that we are not seeing that in South Africa despite the dire circumstances currently facing consumers. Why? Given that 60% of local households have refrigerators this leaves a substantial 40% who do not which means they cannot keep perishable foods.

  “Within that move to staples what we are seeing is consumers moving to maize meal and rice as substitutes instead of buying bread in bulk, which has a more limited lifespan,” adds Nooy.

• Fewer trips larger packs - Against the backdrop of this change in consumer circumstances, it’s understandable that they are also changing their behaviour in terms of shopping frequency. The NielsenIQ data shows that this lockdown-induced behaviour is continuing.

  “Post Covid-19 we are continuing to see fewer shopping trips compared to the end of 2019. This has equated to whopping 40% fewer shopping trips per month in 2022 as compared to two years ago. This is a significant shift by South African consumers who have been forced to make tactical shifts.”

• Home is where the spend is - The homebound economy trends stemmed from the hard lockdowns but it has created a new consumption pattern around home-based consumption, around which expenditure is easier to control.

  The continuation of this approach throughout 2023 is clear from consumer responses to questions about what tactics they will deploy in the next 12 months to save discretionary income.

  Nooy says; “We expect to see far less spending on entertainment, eating out, takeaways, clothing and apparel. The bottom line is they simply cannot continue to consume all that with less and consumers are having to absorb budget in other elements of life to allow them to purchase staples.”

Futurewatch:

The opportunity for innovation - The NielsenIQ team is also providing key insight into how manufacturers can innovate around the current power issues. One way of doing this is to add alternatives to their current repertoire of shelf staples with, for example, a move away from traditionally chilled products like yoghurt and the production of longer life variants in traditionally ‘fresh’ product categories.

The good news is that larger manufacturers have already responded to the need for speedy alternatives in other areas, with Tiger Brands having developed a 600g loaf of bread for Shoprite KZN. There is also the possibility to shrink bread pack sizes even further and create a more cost-effective ‘half loaf’ which has yet to be seen on South African shelves.

* Data source: NielsenIQ’s Market Track, the largest retail (grocery) data source in the country and the only currency used by all South Africa’s major retailers. This benchmark data comprises more than 10,000 branded retail outlets (e.g. supermarkets and garage forecourts) and more than 143,000 independent stores (e.g. Spazas & Taverns) across South Africa’s nine provinces and measures more than 80% of all retail grocery transactions.

**Please note that as an unbiased retail data and analysis provider NielsenIQ is subject to contractual terms which prevent it from releasing specific manufacturer and retailer data points. We also do not provide comment on specific retailer market share or performance and therefore kindly request that any content of this nature is attributed to your source of reference.