How can companies and retailers succeed in South Africa?
Private consumption in South Africa has been growing at a fairly subdued annual rate of 2.8 percent over the past five years and a mere 1.6 percent in the past year slower than Africa’s other major economies.
The recent survey of 1,000 South African consumers confirms that most of them are indeed concerned about their financial prospects and thus holding back spending.
Almost 70 percent of respondents said they worry about imminent job loss.
The South African survey was part of our global survey involving more than 22,000 respondents from 26 countries .3 Our aim was to understand how consumers feel about their financial prospects and how these sentiments are affecting their buying behaviour.
Even if their financial situation were to improve, South African consumers wouldn’t necessarily loosen their purse strings.
Among consumers who said they’d spend a portion of their extra income, most 60 percent would buy everyday necessities.
The survey responses brought to light a set of behavioural shifts among South African consumers.
Companies doing business in South Africa would do well to keep in mind the following four traits of today’s South African consumers.
Seventy-five percent of South Africans agreed that they’re increasingly looking for ways to save money.
In the survey, 21 percent of South African consumers, compared with only 12 percent of consumers globally, reported trading down that is, buying cheaper brands or private label products instead of their preferred brands.
It is perhaps also a testament to the powerful allure of aspirational brands for South African consumers.
South Africans claimed to have shifted a considerable fraction of their spending toward modern retailers and away from the small independent retailers collectively known as the fragmented trade or informal trade.
Indeed, South Africas modern retail trade continues to grow at the expense of the fragmented trade, as big-name retailers expand into more local markets and as more consumers demand the breadth of products and low prices that large modern retailers provide.
Getting credit for value requires companies to pull several levers for example, consistent value communication across all consumer touchpoints, price investments in the items that consumers are most likely to shop around for, and targeted promotions.
Based on such insights, companies devise granular strategies for their brands, portfolio, pricing, and promotions and tailor these strategies to each channel, customer segment, and geographic region.
In addition, to boost the effectiveness of its promotions it not only doubled the return on its promotional investments but also improved consumers perception of the affordability of its products.
For instance, manufacturers often provide informal retailers with an inferior offering when it comes to product, promotions, and in-store investment.
By contrast, companies that serve the informal trade in a distinctive but cost-efficient way providing customised pack sizes, regular consumer promotions, and an appropriate level of in-store investment are rewarded with higher sales and margins.
Source:http://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/south-africas-cautious-consumer about the authors -Damian Hattingh and Karl-Hendrik Magnus are partners in McKinsey’s Johannesburg office, where Sidhika Ramlakan is an analyst.