Retail revolution: the rise of group purchasing organisations in SA

Karen Keylock, national retail services manager at Nedbank Commercial Banking. Image supplied

South Africa has seen an increase in the emergence of buying groups — also called group purchasing organisations (GPOs) — over the past decade.

Being part of a buying group gives you the support of being part of a larger organisation while still enjoying the autonomy of being your own boss.

As the name suggests, a buying group is a collective association of businesses that join forces to improve buying power, drive efficiencies and share collective knowledge, all leading to better pricing and an improved retail experience.

It differs from the franchise model by being less prescriptive in terms of operational requirements, corporate identity, and marketing obligations, while providing a level of support according to the unique needs of each retailer in the group.

Buying groups exist in many retail sectors in South Africa, particularly fast-moving consumer goods (FMCG) and hardware. Noteworthy buying group brands in these sectors include Spar and Shield in FMCG, and Power Build, Build it and Mica Hardware in hardware.

‘Independent retailers operate in a competitive, complex environment, constantly facing the threat of losing out to large retail chains with their huge marketing budgets, and a customer base that is increasingly savvy and cost-conscious,’ says Karen Keylock, national retail services manager at Nedbank Commercial Banking.

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A collaborative approach

‘To thrive in this environment, these independents need more than just a good idea and strong business acumen; they need a strategic edge. This is where the power of a value-adding buying group with or without retail brand options, optional central accounts and multiple other support services becomes attractive.’

‘This collaborative approach is about much more than simply pooling volumes to secure substantial discounts from suppliers,’ adds Keylock.

‘By obtaining better credit terms, streamlining the supply chain, reducing wastage, improving inventory turnover, and adopting joint accounting systems and marketing initiatives, the buying group can improve pricing and efficiencies and offer a broader range of products.’

An interesting spinoff is that the savings generated in the network by centralised purchasing increases the profits of each individual network company because they receive a portion of the rebates from each purchase.

And on the other side of the transaction, group purchasing affords suppliers easy access to a larger pool of buyers, which streamlines their operations and, in turn, allows them to offer lower prices.

According to Armand Feldtmann, MD and founder of Power Build, a buying group in the hardware, building materials, DIY and paint sectors with more than 700 stores in their network, the support they provide their retail partners is flexible and can be determined by the retailer on a pay-as-you-use basis.

‘Our entire business model is centred around providing our partners with the specific assistance they need. So, members can select anything from a simple purchasing power arrangement, which they apply to their own branded store where they take care of their own administrative, marketing and support needs, to a fully branded Power Build store and the supplier deals associated with it, strengthened by operational, human resources and admin support, marketing and cutting-edge software solutions.’

Freedom and flexibility

International FMCG retailer, Spar, is a voluntary trading organisation that provides store owners with access to bulk-buying benefits but differs from a franchised business in that retailers aren’t dictated to by a corporate structure.

This means they have the freedom and flexibility to choose their own product range and provide input into the pricing and strategy of growing their businesses within the community they serve.

As with Power Build, Spar couples the freedom and independence provided by the buying group model with consultation and assistance in all areas of retail operations, such as merchandising, promotion and advertising programmes, finance controls, staff employment support, new store development, as well as revamps of and upgrades to existing stores.

Their distribution network is extensive, with six distribution centres around the country and an extensive fleet of trucks delivering frequently to 2,500 stores countrywide.

While certain operations, such as restaurants and fast-food outlets, lend themselves to a stricter operating model to ensure consistency of quality and a standardised customer experience, the efficiency-driven savings provided by the buying group model are attractive in other sectors.

This is particularly important in an environment where every rand and every improvement can transform a business from one that is just surviving to one that is actively thriving. This business model allows independent retailers to benefit from the economies of scale typically reserved for larger counterparts, while enjoying the autonomy of being their own boss.