e-spaces

In developed retail markets, including South Africa, a battle is going on between smaller convenience grocers, where consumers pay a premium, and discount destination stores that are costly to drive to.

In the US, despite the fact that people are driving less because of the high oil price, Wal-Mart, the world’s most successful deep discounter, is winning that war hands down, for now. Nevertheless, the big box retailer is opening smaller convenience stores on the west coast to counter a new threat from UK supermarket group Tesco.

But this may be more than a defensive strategy: when the downturn is finally over, consumers will again be prepared to pay more for convenience, not to mention luxury foods.

In South Africa it has been more of a mixed picture: Woolworths’ convenience offering has been hurt, while Pick n Pay Hypermarkets, in the year to February at least, were less profitable than expected.

But Massmart’s Makro format, with its low shop-fitting costs and low number of staff per customer, is thriving.

In Europe there is a model that fits between the convenience outlet and the big box destination store: the hard discounter.

These smaller stores, such as those in the Aldi chain, sell a limited range of only fastest-selling products, including its own label goods, which carry a higher margin than big brand groceries. Like Makro, these chains don’t spend a lot on stores but have managed to entice rich and poor alike as they steal market share from traditional supermarkets.

In South Africa nobody has tried this in middle-income areas, although Shoprite’s Usave chain, based on the model, is doing increasingly well in poor areas.

Supermarket groups must have been tempted to try this in the suburbs, but have probably been rightly scared that such a strategy would hurt existing stores.

This probably leaves the idea open to a player without a vested interest in the trade. Until now, the deep pockets required have deterred any new entrants, but talk is increasingly turning to this possibility.