Consumers bought more liquor than ambient food in Q3

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JIMMY MOYAHA: I’m your host, Jimmy Moyaha and I’m chatting to Zak Haeri, who is a market lead at NIQ South Africa. They published a report on the State of the Retail Nation – and we’re going to take a look at that report now.

Good evening, Zak. Thanks so much for taking the time. What is the state of the retail nation of South Africa? What are we going through at the moment?

ZAK HAERI: Thanks, Jimmy. Thanks for the question. It’s a good one. Some of the statistics might indicate that things are a little bit flat, but I think it’s really important to remember that this industry is huge. It has been delivering about R631 billion in sales in the last 12 months, and we’ve seen some substantial growth versus the prior year. We’re seeing growth of 14.7% in value terms, and of course, that includes a lot of inflation.

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I think inflation’s on everybody’s mind and everybody sees that in their pockets. But we are also seeing something like a 3% increase in volume. So overall, actually, the market is still pretty buoyant.

JIMMY MOYAHA: Zak, despite the market being buoyant, how have the inflationary pressures influenced buying and spending patterns? Have you noticed anything in the data?

ZAK HAERI: Oh yes, absolutely. Obviously we’re looking at inflation very closely.

In our specific method of calculating it, we’re looking at inflation of about 10%. That’s inflation in the products that consumers pay for at the shelf edge, and that’s about two times the inflation of PPI [producer price index]. That’s inflation on the raw materials that are going into the products that consumers are ultimately buying.

So what we’re now seeing is a big disconnect in the inflation on the consumers’ products versus the producers’ raw materials.

What that is telling us is that the increasing costs of those raw materials are now being passed through to consumers.

Of course, I think you are aware – and I think your listeners will also be aware because we’re sort of experiencing it ourselves – that real wages are a little bit flat in South Africa. So when you are all confronting that situation, sort of high inflation and real wages being pretty flat, of course there are quite a few changes that we’re seeing.

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But I think one thing to maybe bear in mind on the things where we’re not seeing change actually, quite interestingly, consumers just don’t really let go of life’s pleasures. So as an example, we still see brands really, really favoured.

If we look at the top 60 brands in South Africa by sales, we see something like 16% year-on-year growth. That’s versus the 14.7% on the total market I was talking about.

And then also we see the top three categories in South Africa are all non-essentials – liquor, soft drinks and cigarettes being those top three.

So life’s little pleasures we are not going to let go of any time soon.

JIMMY MOYAHA: Zak, you say not letting go of life’s little pleasures, and the data suggests that [for] South Africans in that category, the star performer seems to be liquor sales. We are purchasing more liquor than we are food. How do we make sense of that?

ZAK HAERI: Yes, that’s an interesting one and I’m sure that those sorts of statistics can lead to a lot of people – especially in government – maybe wringing hands.

However, it’s worth considering that we may be coming from a relatively low base compared to other countries. Overall [in] South Africa, in the sub-Saharan Africa region, we do have relatively high levels of alcohol consumption. But when we compare that to developed economies, developed markets, it is still quite low. So no panic, I think, just yet.

But yes, there has been quite an uptick in volume, so we’re not looking at inflation any more, we’re looking at actual volume and we see something like a 14.4% year-on-year uptick.

Where is that coming from? It seems like people are experimenting a little, trying new products in different lines. So premixed alcohol and ciders and that sort of stuff – that’s like being an upwards of 14% year-on-year growth.

So yes, there’s a definite increase in that, but also it might be partly driven by what we’re seeing, a general reduction in people spending money on out-of-home entertainment, restaurants and those sorts of things.

JIMMY MOYAHA: So overall people electing to, instead of dining out, are just purchasing some liquor and going home and enjoying that at home, hopefully, and in the safety of their homes and not on the roads.

Zak, I want to look at the private-label aspect of this. What does that cover? What does that entail within the report because that has stabilised at 24%? But we’ve seen an increase of about 14.7% in things like the ambient food value.

ZAK HAERI: Yes, absolutely. By ‘private label’ we mean brands that are owned and controlled by the retailers themselves. Retailers will typically make a little more margin on those brands, and that’s why they might, in some instances, favour those over branded products – the brands that maybe we’re a little more familiar with. It makes sense from a retailer’s perspective.

But, as I mentioned earlier, consumers still really like the brands that they’re familiar with, the brands that have been used by their families in some cases, for generations.

So from a retailer’s perspective it’s really a balancing act to try and figure out in which categories a private-label brand could actually have some opportunities. We do see some categories with very high levels of private-label market share up 40% in some categories, like kitchen consumables.

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In others, though, it may be a little more difficult.

You’ve probably experienced it yourself, just walking into a store and seeing a new brand. It almost seems like it landed from outer space.

In many cases that will be a private-label brand. So there are some opportunities. It is still growing. It’s outperforming the market just a little. So private label I think, if we were to consider it a brand overall, is the number one brand in South Africa.

JIMMY MOYAHA: South Africans never cease to amaze me. Thanks so much, Zak. That’s Zak Haeri, a market lead at NIQ South Africa, giving us a sense of the State of the Retail Nation – where we’re spending all of our money and some of the trends that have emerged over the last quarter.