ACNielsen conducts a pricing study called Inspeck, where a basket of specific goods are tracked on a monthly basis. For this article, the average prices reflected are taken from the following retailers: Checkers Hyper, Checkers, Shoprite, USave, Pick 'n Pay's Hypermarket, Supermarket, Family and Mini outlets, Woolworths, Superspar, Spar and Kwikspar.
The size of the total 'food' market (incorporating Food, Household, Personal Care and Health, Confectionery, and Non- Alcoholic Beverages products) for these stores for the year ending December 2004, was R71.6-billion.
Annualised food growth in December 2004 was 10.6% - a sharp, inflation-driven drop from its month-on-month high of 20.5% in April 2003. The lowest growth reached last year was in August (7.3%), followed by an uptick in October to 13%.
Stats SA reveals that in October 2002, the All Items level was at 14.4% (month-on-month) and since then there has been a steady decline in inflation which meant that by December 2003, inflation on All Items was only 0.3% while food inflation had declined to 2.6%. By December 2004 annualized food inflation had stabilized at 2.3% for the year.
Looking at food market growth by region, the Eastern Cape led the way with just under 14%, followed by Rest of Transvaal - Mpumalanga/Limpopo/North West (13.2%), Western Cape (11%), Free State / Northern Cape (9.8%), Gauteng (9.1%) and KZN (8.9%). The growth total for SA was 10.6%.
So, if lower inflation leads to lower food prices, then consumers benefit at the till, right? The short answer is yes, although there is a lag from the time food inflation drops to when food prices follow suit.
Inspeck surveys showed that a basket of defined goods cost 2.4% less in December 2004 than it did in the January of the same year. How, then, did retailers achieve food growth of 10.6%? One way was through upgrading their existing stores and opening up new stores: 148 new outlets in the defined market in South Africa alone, located primarily in Gauteng, KZN and the Western Cape.
Without the new stores, a like-for-like analysis on December 2004 (total food) show that a growth rate of only 6.6% for total South Africa would have been achieved.
Significantly, the retail expansion strategy spread beyond South Africa's borders with an additional 19 new stores opened by the abovementioned majors in southern Africa and further north. New store openings in 2005, through both corporate and franchise retail formats, are expected to drive food growth into the early teens. Retailers with a keen nose for opportunity may look to expand their footprint into areas such as Soweto, which remains relatively unexplored although it is showing signs of real growth in key sectors, including housing and tourism.
Innovative marketing also played its part in the growth of 2004: Woolworths and Engen, for example, conducted pilot projects in five stores offering selected Woolworths products through Engen outlets. At the end of last year Woolworths confirmed it would roll out this format nationwide from mid-2005. The company also launched Issentials in 2004 and is piloting five sites in the Western Cape.
Looking to 2005, there's good news for consumers! Expect food inflation to drift between 3 and 7%, with annual food growth likely to be between 6-8% in terms of like-on-like growth. Retailers will experience a lowering of their value growth and will need to drive volume and remain highly cost-competitive.
Retailers should also continue to revamp their older stores to ensure a desirable shopping experience for consumers. Central to this is the need to offer convenience, both in terms of food product ranges and added value.
