Hypermarkets in South Africa -The Future of retailing? - CNBC Africa

Hypermarkets in South Africa -The Future of retailing?

Southern Africa

by Girland Chibaya 0

Hypermarkets in South Africa-The Future of retailing? PHOTO: Wikipedia

The South African retail industry has changed dramatically over the last decade. Improved and up-to-date infrastructure in the country has given rise to a more competitive environment dominated by a number of major players and several aspiring smaller retailers. The improved roads network has benefited the retail industry facilitating an efficient distribution of goods to most areas of the country including townships and rural areas. 

Malls have mushroomed not only in traditional inner-cities but in suburbs and townships too. Urbanisation continues to increase in South Africa with the country now having 64.3% people living in urban areas compared to 52% in 1990. Rapid construction of high-density housing in the surrounds of major urban areas  has  led  to  the  demand  for  and  increased  developments  of  malls  in  these  residential  areas.

South Africa has the 6th largest number of shopping centres globally according to the South African Council of Shopping Centres (SACSC), consisting of over 2,000 shopping centres with a floor area covering a whopping 23 million square metres. With more and more malls opening in South Africa, retailers are desperately seeking strategies of how they can gain market share in the fiercely competitive market.

Research has shown that a retailers' global competitive advantage may be reflected through efficient sourcing and supply management techniques, or well-developed operational procedures. A major criterion for evaluating these advantages is the effectiveness and essentially measured by the most important retail metric-sales volume. Sales volume later translates into revenue and profits and ultimately a gain in market share.

The recent craze of mall openings in South Africa has seen most retailers scrambling for space hoping that the extra square metres could gain them a bit more market share. Research in developing markets such as Malaysia has shown that hypermarkets are one of the fastest growing formats there. In commerce, a hypermarket is a superstore combining a supermarket and a department store. The result is an expansive retail facility carrying a wide range of products under one roof, including full groceries lines and general merchandise.

In theory, hypermarkets allow customers to satisfy all their routine shopping needs in one trip. In South Africa, hypermarkets recently have been seen as more attractive through their offer of more variety products and services. Food retailers such as Woolworths, Pick n Pay and Checkers have therefore continued to expand via this format, but the question is “Are Hypermarkets effective in a South African context?”

Grocery shopping behaviour in South Africa can be described as a routinized and functional behaviour. It is also be best described as being heavily dependent on location related factors. In a country like South Africa where the number of road vehicles per 1000 people is 165, then does a retail format which is heavily dependent on customers travelling potentially long distances with big loads of groceries suffice? In the main cities where these hypermarkets are located in big malls, it is next to impossible for the predominantly working population to make more than one trip from home to the mall especially during the week. It therefore implies that these malls only get the footfall on weekends when customers have time to travel.

South African consumers have different reasons for preferring different store formats, either modern hypermarkets or traditional supermarkets. In the case of hypermarkets, the main motives for preference, in decreasing order are: low prices, the possibility of buying everything in the same place and the general appearance of the store. Research has shown that most South African customers are bargain hunters. Defined as people who look for a place to buy something at a price that is cheaper than usual, bargain hunters view hypermarkets as cheaper because of their ability to source in bulk and hence enhancing their ability to pass on lower costs to customers.

The truth is, this probably never happens in some of the South African retailers who do not operate franchise models due to constraints imposed by systems which prevent them from operating a multi-priced system allowing their retail outlets to sell the same item at different prices at different locations. For those retailers who try and implement this multi-price system, it becomes such a nightmare to manage the analytics in the long run especially considering that most of these retailers use one supply chain and therefore one costing method for all merchandise they sell.

Retailers by using the concept of store image, consider the way consumers see their stores in their minds, based on tangible and intangible attributes. Therefore, some South African retailers have been working on using their store image as a “marketing tool”, or as a “competition tool”. They have used store images to provide themselves with useful indications about the most and the least appellative attributes to consumers, and therefore, getting further insights for designing strategies about their marketing mix.

In conclusion, the hypermarket is still the preferred kind of store by consumers in South Africa, even though the consumers buy in several establishments and not exclusively in the hypermarket, which indicates that there is no single loyalty to a type of format. Although  the  majority  of  food  and  household  products  are  offered  in  supermarkets  and  in  small  retail  outlets,  hypermarkets offer obvious benefits to their customers. The impact of hypermarkets has also been felt in other types of retail, namely toys, stationery goods and house-hold appliances. Competition gets more intense in other sectors, such as clothing and furniture where there has been an influx of international retailers seeking new markets in Africa. 

Girland Chibaya is a retail professional with vast experience in retail management, supply chain management. He has worked for international retail companies in South Africa and is currently studying for an MBA with the Gordon Institute of Business Science in Johannesburg.