- Sasolburg Direct
The township spaza shop competition is tough, and the subject of foreign-owned spazas is a thorny one for many local spaza shop owners.A Cape Town based non-profit organisation, the Sustainable Livelihoods Foundation (SLF), conducted a two-year in-depth study to understand the current characteristics of ownership, the scope of employment within the business and trading practices of spaza shops in the Western Cape and Gauteng townships.
Spaza shops are micro-convenience stores which operate in township residential areas, selling groceries, bread, cool drinks, prepaid airtime, sweets and cigarettes.
The study surveyed over 6000 micro-enterprises in nine localities, covering an estimated 50,000 households. One of the most striking findings documented in the SLF’s report, The Informal Economy of Township Spaza Shops, is that South African owned spaza shops are less competitive than foreign-run spazas. The reasons given by the study – why foreign shopkeepers enjoy success than South Africans – are attributed to the strength of their social networks, which provide them with access to labour and capital, and thus enable them collective purchasing and market domination.
However, the study also reveals a growing concern from local business owners that much of the economic value now generated within the spaza shop market, including wages, is exported from the township economy to home countries of these foreign entrepreneurs and workers. The study also shows a further concern, that is the role of foreign shops in providing access to contraband goods.
We take a look at five key business areas that differentiate foreign-owned spaza shops from local ones as identified by the SLF research.
Foreign spaza businesses are successfully using supply chain networking and price discounting to procure goods more cost effectively.
- Ownership dynamics The majority of South African spazas are home-based, whereas foreign-run spazas usually operate from a semi-detached room or from a rented premises – usually an existing spaza shop venue.
Another differentiating factor, even though its impact is not fully understood, is that a significant number of South African owned spazas are owned and run by women, whilst almost all foreign operated spazas are male-owned businesses.
There is also evidence of collective or cooperative ownership among foreigners. This means that the majority of foreign spaza shops are either owned through a share-holding agreement or a single entrepreneur owning several stores.
- Capital investment According to SLF’s research, foreigners’ competitive advantage is evident in the scale of investment which is approximately R45,000 on average, within start-up businesses. This is compared to R1,500 to R5,000 on average for South Africans.
The financial backing from these ownership models combined with the benefits of a ethnic business networking enables foreign spaza shops to purchase within buying collectives and achieve greater economies of scale.
The study reveals that this increased purchasing power, together with lower unit transaction cost such as transport and labour, enables these collectives, similar to large enterprises, to secure more favourable terms from wholesalers and obtain direct supply linkages to manufacturers.
- Stock procurement An important business advantage of foreign shopkeepers, for example, lies in the semi co-operative supply system through which the shop owners procure their goods from wholesalers and manufacturers. According to research, foreign spaza businesses are successfully using supply chain networking and price discounting to procure goods more cost effectively.
Each business thus benefits from a procurement and distribution chain that supports multiple stores. As a result of their scale of operation, each buying collective, is able to secure premium terms from suppliers and can reduce transport costs and ensure that shops within the group receive an uninterrupted supply of merchandise.
The study found that in contrast, as sole traders, South African spazas are unable to match the collective purchasing power and labour advantages of the foreign businesses and have opted to either close their shops or focus on commodities in which they can sustain a competitive advantage like take-away food and liquor retailing.
- Business operations On the operations of business, research found that some local spaza shops, such as the house shops, operate part-time to supplement other household income. Most South Africans operate their businesses themselves or draw on family labour.
Foreign spazas conduct business on a full-time basis and provide employment to persons other than the business owner and family, commonly known as casual workers. Some of these employees work under conditions akin to bonded labour, which means they work around the clock as shopkeepers during the day and security guards at night. This enables the foreign spazas to minimize their labour costs, whilst employing sufficient staff to operate the business over longer trading hours. Many trade between 6am and 10pm.
- Product diversification According to SLF research, the success of foreigners within the spaza market has been achieved through the careful positioning of businesses to operate within particular niche markets.
The study reveals that product diversity and range has given foreign run businesses competitive advantage while local spaza entrepreneurs have failed to interpret this market.
Foreign spaza shops engage in diversifying business through selling alcohol and installing arcade games. This is a competitive advantage that many South African spaza owners have not yet capitalised on.
This article was first published by SME South Africa to read full report SME southafrica