Food Retail –Coface Sees Stable Growth for 2012/13

International credit insurer Coface, in its quarterly risk view, says higher food prices are enabling retail growth in the non-durable sector. Coface projects 2,3% food retail growth in 2012 and 2,9% in 2013. Consumer demand was surprisingly strong in 201

Coface projects that retail inflation will increase 4,5% in 2012 and says inflationary pressure will remain contained. In the short to medium term, rising household income and stable interest rates will support consumer spending and moderate retail trade sales growth.

Coface believes Walmart’s entry into the South African market is a positive development. This amounts to R16,5-billion in foreign direct investment. Walmart projects that 15 000 jobs will be created in the Walmart-Massmart operation in South Africa.

The report identifies four emerging retail trends. Firstly, South African consumers are becoming increasingly health conscious, making wellness foods, health and convenience products important drivers. There is also increased demand for house or private-brand labels. Consumers see these products as providing good value.

Secondly, there is increasing demand for longer opening store hours or even 24-hour shopping. Thirdly, environmental awareness, waste recycling reduction and organic farming are becoming important issues for South African consumers.

Fourthly, says Coface, although many South Africans choose products according to price, consumers in informal markets often demonstrate contradictory demands and characteristics. For example, spazas and other informal shops tend to only supply leading-brand items because their customers demonstrate strong brand loyalty. Adding to this trend is the fact that the black population’s buying power is increasing.

Attributes that may help products succeed in informal markets are lower price, a single service package size and products that do not require refrigeration. Supermarket retail chains continue to convert or revamp their less successful store brands to a more targeted consumer base to boost sales. There is also a trend for supermarket chains to buy back their franchised outlets to improve on customer service.

Macro Economic Indicators
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Coface has presented the following SWOT analysis of the South African retail environment:

Strengths

· Well established companies

· Brand loyalty of South African consumers

· Established Infrastructure

· Mature Industry

· Rising middle class indicates increasing demand

Weaknesses

· Competition resulting in small retail margins

· Stringent SA labour laws

· Limited capacity for food processing in country

Opportunities

· Rising middle class

· Penetration into rural areas

· Financial products due to large customer base. There is an increased trend by retailers to offer additional financial services, for example Pick n Pay offering Pick n Pay Go Banking or insurance services.

Threats

· Cheap imports from the East

· Stringent labour laws

· Weakening economic climate is resulting in a reduction of disposable income