The thrifty shopper is reshaping South African retail

Consumer confidence has been negative for seven years and has fallen further as fuel costs have risen and interest rates have ticked higher. Equity Analyst DHERSAN CHETTY writes that South African grocery shoppers are under pressure, but they have not stopped spending. 

This resilience should not be mistaken for comfort. Consumers are increasingly highly price sensitive. Shoppers are buying more on promotion, switching brands and moving towards retailers that offer the clearest value.

This trend has helped Shoprite and Boxer gain share from Pick ‘n Pay and Spar, which have faced both market pressure and internal challenges. Being price competitive is no longer enough. Retailers also need the right format, stock availability, data and customer loyalty to turn value into repeat business.

Shoprite’s Checkers brand has done this particularly well. Its scale gives it buying power, while its data allows promotions to be more targeted. The group’s Sixty60 platform has also changed customers’ perceptions of Checkers. It is no longer just a middle-income supermarket chain. For some consumers it has become the most convenient grocery option; for others, it has replaced a weekly shop at Pick ‘n Pay or a convenience stop at Spar. The shift is not only an online phenomenon: once customers change their view of the brand, it can also affect where they shop in store.

Pick ‘n Pay subsidiary Boxer is winning in a different way. Its discount grocery model is built on a narrower product range, high volumes and low prices. That appeals to shoppers managing tight household budgets, and to suppliers that need scale. Boxer is expanding from a low market-share base, both in attractive nodes and in rural or semi-urban areas where formal retail remains underpenetrated.

Woolworths is an altogether different case. Its food business has been resilient because of product quality, brand trust and a loyal middle- to upper-income customer base. However, its online offer is weaker than Sixty60, particularly in delivery availability. The brand remains strong, but the convenience gap has begun to matter as shopping habits change.

Private label supermarket sales should, in theory, benefit from price-conscious consumers. In practice, growth has been less exciting. Penetration is already reasonably high in South Africa, while local production capacity is limited. Branded food producers are also fighting back by cutting costs, simplifying packaging and launching cheaper variants. This narrows the gap between branded products and private label. Companies such as Tiger Brands — in which we are invested — are adapting to this shift.

Lower oil prices may offer some immediate relief to households and retailers’ transport costs. Yet the benefit is unlikely to reverse the full petrol price increases that followed the on-again-off-again US-Iran war. Packaging and input costs may even rise with a lag, while a possible El Niño later in the year could put renewed pressure on food inflation if it brings drier conditions to Southern Africa. Retailers may therefore become more selective with promotions as they protect profit margins.

The weakest area for the retailers is clothing, which is more discretionary and more exposed to brutal Chinese competition. Food retail remains the safer part of the consumer market, but even there the winners are separating from the pack. In our view, the best opportunities are in businesses with scale, strong systems, good formats and clear value propositions. The South African consumer is stretched, but still spending carefully. Retailers that understand that difference are gaining ground.