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Shoprite holds market edge through convenience, pricing

Shoprite's dominance in the grocery market looks set to continue for the foreseeable future, according to new research released yesterday, 2 July 2012, by TNS.

The Commitment Economy, an independent global survey of over 39 000 people in 17 markets, reveals that competitive pricing and the convenient location of Shoprite's 1 520 stores are giving it the edge over its competitors, despite the fact that rival brands are more highly regarded in the minds of people.

The researcher's unique modelling exercise found that 12% of Shoprite's market share (equivalent to R28 billion) comes from people who actually feel ambivalent about the brand, but who shop there for practical reasons. These shoppers would go elsewhere if alternatives were closer to home or more affordable. However, competitors are not currently in a position to challenge it on either count in the near future.

Neil Higgs of TNS South Africa, said, "For most market leaders a lower brand loyalty would be a cause for concern, but its position is so firmly entrenched that it would take a significant effort for any competition to make a serious dent in this market giant's armour. However, it would be wise not to be complacent. We are detecting real demand out there for alternatives and smaller players who can meet that demand do stand to make significant gains."

Growth potential

The study points to valuable growth opportunities for smaller retailers such as Woolworths and Fruit & Veg City/Food Lovers Market, which are more warmly regarded by South African shoppers. It found that if consumers were able to act on preference alone, Fruit & Veg City would double its market share from 3% to 6% (equivalent to R7 billion), whilst Woolworths could triple its share. In addition, Pick n Pay Hypermarket could double its market share.

However, affordability and location emerged as the main barriers preventing shoppers switching retailer, especially for these three outlets, suggesting that whilst premium grocers may not be able to compete on price, they could punch above their weight by focusing on convenience. The extent to which these retailers can capitalise on the potential opportunity depends on their ability to remove or reduce these barriers. Higgs added that, in the 2011 Times/Sowetan Top Retailer survey, also conducted by TNS, Woolworths had indeed already made significant upward progress in the scores.

The research estimates that Fruit & Veg City/Food Lovers Market, which recently launched its Freshstop outlets in partnership with Caltex, could generate almost half of the potential R7 billion of additional business available, by simply choosing sites close to other large retailers and locating express stores in urban, high traffic areas.

The survey showed that Pick n Pay is in a similar situation to Shoprite, with lower levels of customer commitment relative to the chain's market share. The figures suggest that up to R12.7 billion of Pick n Pay's revenue may come from shoppers who are more swayed by practicality than brand loyalty.

Interestingly Pick n Pay Hypermarket is seen more favourably than its supermarket offering but the location of these outlets mean that the warmth felt towards them by people in South Africa is unlikely to translate into growth in the near future.

Jan Hofmeyr, chief researcher, behaviour change, at TNS said, "As people are confronted with more choice, retailers should be asking themselves whether footfall is backed up by real commitment to the brand. People may continue to part with their money for reasons beyond their control, but the minute more attractive options are available they are likely to switch. This makes them an easy target for competitors looking to steal market share."

Biggest opportunities

TNS has calculated which retail chains have the greatest growth opportunity in total market share terms.

Ranking (Top 5)Monetary value attached to opportunity (in billions of Rand)
Woolworths13.6
Pick n Pay Hypermarket12.3
Fruit and Veg City/Food Lovers Market7.0
Makro6.1
Game/Foodco5.4

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