Online Groceries in South Africa: Far from Booming


Since omni-channel and bricks-and-clicks have become the retailing buzzwords of our age, no grocery retailer in their right mind can expect to survive in an increasingly connected world without an e-commerce site or click-and-collect options. South Africa however, despite a very developed and competitive retail landscape, lags behind in terms of online groceries. Yet the industry is very much alive and the country shows useful examples of how bricks-and-mortar can still thrive.

South Africa’s population is young and its living standard is rising thus fuelling the demand for grocery and non-grocery goods. The majority of this population will shop from modern store-based retail as they progressively move away from traditional and informal retailers (spazas) and aspire for the modern shopping mall experience. This will result in an increase of 30% in store-based sales per capita by 2016, one of the fastest in the world.

Another great advantage of grocery stores over the internet lies in the range of additional services they offer. Big chains such as Shoprite and Pick n Pay have dedicated counters within their stores where shoppers can access banking services, bill payments and money transfers. Such services are particularly successful with low income clients, many of whom have no bank accounts but want to be able to receive or send money to their relatives across the country. This is a major advantage as it attracts footfall and reinforce customer loyalty to the brand.

Low internet usage limits potential for e-commerce

Shoprite, the country’s largest and growing retailer does not have an online shopping site. The company focussed instead on opening new stores in South Africa and abroad and increasing its footprint in townships where its core demographic lives. The company considers that keeping low prices on grocery and general merchandise and cutting down costs is the way forward. This has been quite successful as the retailer is perceived by most consumers as cheaper than its main competitors.

Amongst the major South African retailers, only a handful have set up online stores and the impact on the bottom line is yet to be seen. Even the two most active players, Pick n Pay and Woolworths, derive less than 1% of their total sales from internet retailing. This is a direct consequence of the low penetration of internet in South African households. At 11%, it is 4 times lower than Brazil although both countries have a similar GDP per capita. South Africa will need at least to double internet usage before it sees an uptick in e-commerce.

Possession of Internet Enabled Computer and Penetration of Internet Retailing by Country in 2012

Source: Euromonitor International

Mobile internet rather than computers

So what can retailers make of the internet if not sell through it? First of all, they can make sure to target mobile phone users. Indeed, mobile technology has taken the limelight from home computers and nearly 95% of households owned a mobile device in 2011. It is expected that in 2013, more smartphones will be sold than feature phones, thus providing a major boost to mobile internet usage. And this is where retailers should focus their attention.

Since consumers can easily browse and research products on their mobile devices, they are more likely to spot price gaps between different companies for the same product or be aware of promotions at their local store. Retailers who embrace this and become more visible and transparent online will see higher traffic to their stores and higher customer loyalty. Another tool is social media: getting customers to share feedback and opinions can help build brand equity and also provide a wealth of direct customer data that retailers can leverage to improve their offering.

Such strategy is needed in order to sustain long term growth and prepare for the time when online grocery shopping really becomes big in South Africa. Then, the companies which have invested in establishing a modern and interactive online presence (be it through e-shopping, blogs, Facebook or twitter) will be the first to reap the benefits.