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This article is taken from the September 2002 Phatlalatsa newsletter

 

The quiet revolution in a hidden market

The quiet revolution in a hidden market imageSpaza shops are everywhere, but have you ever stopped to think what that must mean in financial terms? Matthew Smith is heading a study to help answer this and other questions, and describes the project below.

The Triple Trust organisation (TTO), a Not For Profit organisation based in Cape Town, recently commissioned S&T to conduct a market assessment of the spaza sector so that they could better understand key questions concerning the spaza shop market in Cape Town.

A GROWTH SECTOR

A conservative estimate is that there are at least 14000 spaza shops in Greater Cape Town, with a weekly turnover of on average about R1500 per week. This equates to an annual turnover of more than R2 billion a year! Compare with World Bank study which estimated that 10 years ago annual turnover in the spaza market in the whole of SA was anywhere between R3-7 bllion.

Spaza - "hidden" or "informal", "quazi" - shops, as many readers know, are informal retail micro enterprises operating from the owner's dwelling.

Many of those who start such enterprises do so as a way to make a living when there are few options available to them. Most owners have little direct link to the manufacturing industry; like you and I, they shop at a mixture of retailers and wholesalers.

PROBLEMS...

Obviously this sector provides considerable difficulties for anyone operating in it. Owners spoke of a range of challenges ranging from infrastructural issues (e.g. storage), environmental (rain & rats), security & insurance, finance (to buy stock/ invest in expanding their business) and theft to insufficient stock and transport .

…AND RESPONSES

Innovative ways owners tend to deal with these problems include,

  • organising "group" transport to suppliers use of catalogues to compare prices and find suppliers who package goods for selling goods in small quantities
  • accessing bridging finance from friends and family
  • introducing security measures to deal with theft
  • enlarging and decreasing stock based on demand

Whilst nearly every township resident might use such a shop at some point due to their convenient location (75% use them almost every day), many consumers find spazas expensive. On average, women spend about R30 per visit, whereas men spend only about R8 per visit. This is not surprising bearing in mind that owners cited transport to suppliers as one of their biggest challenges.
Add to this the fact that owners seldom receive a discount from these suppliers it is no wonder that these goods are so expensive to the spaza shops' customers. Whilst price and convenience were critical factors that influenced consumer use of these shops, a number of other factors also played a role including client satisfaction, the fact that people could purchase goods in small quantities (e.g. one cigarette or one disprin), and to a lesser degree the issue of buying on credit.

REGISTRATION

A surprisingly number of owners (57%), would consider registering their business. Reasons for not registering included concern about the future of the business, the fact that registering is complex business and owners were unsure how to go about it. Moreover many owners were not convinced that registering their business would be of any benefit to them.

TTO commissioned this study to assist the organisation to design appropriate interventions that would assist in the development of the spaza shop market. This project follows TTO's shift to facilitating the delivery of effective market-based business development services (BDS) to SMMEs. This shift, away from the more traditional approach of offering free training and other business development services to build capacity, has come about as there is now a growing realisation that the traditional approach has distorted the market as they tend to be short lived, expensive and have little long-term effect.

Recent research shows that if donors and practitioners learn to develop market based or commercial solutions to business problems and constraints they can intervene more effectively into the SMME sector. This market development approach to delivering BDS will see TTO facilitate linkages between SMMEs and service providers particularly in weaker markets and previously disadvantaged communities.

The BDS market development approach is rooted in a fundamental faith in private sector markets as engines of growth and efficient suppliers of goods and services. Despite this, there are obvious distortions in the market for SMMEs - these might include suppliers ignoring SMMEs (particularly in the poorer areas, suppliers preferring to work with medium size enterprises but not small or micro ones, suppliers offering inappropriate services. Therefore, to ensure that the needs of the SMMEs are fully understand and that those operating in the SMME sector are fully conversant with the environment an adequate understanding of the market is required. This is precisely what TTO have now done.

The research project conducted by S&T is the first phase of TTO's strategy. S&T has provided TTO with a comprehensive report on its findings in the spaza shop market in greater Cape Town. With this information TTO will now embark on a wide range of strategies within the spaza shop market, based on an informed understanding of the sector provided by S&T.

 

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