The retail sector in South Africa is giving us a front-row seat to the power of disruption. The true value of this display lies in how relatable it is, as we witness this phenomenon every time we go to the shops — or use our smartphones to order online and avoid the drive. Therein lies the disruption that is widening the chasm between retail winners and losers.
Traditionally, leases were a moat. With the right location, a store could get away with being inferior to a competitor a few kilometres up the road. Sure, if it was really poor, customers would drive to the next store. But within the bounds of receiving reasonable service, customers would value convenience above all else.
Technically, the love of convenience hasn’t changed. We still want to get our groceries done in the easiest possible way. The difference is that the moat is now a successful online app backed up by a world-class fulfilment network. Consumers are far less interested in exactly where they will find their nearest store. Who cares where the scooter is coming from?
I moved house towards the end of last year. I used to be within walking distance of a great Spar. Now I’m a short walk away from a Woolworths Food. I was sure we would keep going to our favourite Spar, but the truth is that we are just using Sixty60 for most of our groceries and Woolworths for a selection of goodies that have that extra layer of quality.
We go to the Spar perhaps once every few weeks for the unusual things it stocks. It struck me on a walk to Woolies this week that this perfectly explains the grocery battleground.
There are three primary ways for a grocery store to compete: quality (including assortment), convenience and price. Woolworths is still top of the pile for quality and assortment, though Checkers has closed the gap considerably. In the price game, we find Boxer and Shoprite as the people’s champions. When it comes to convenience, the answer lies in the proliferation of turquoise-coloured scooters on our roads: Checkers is the winner.
As for poor Spar, I’ve seen more sports cars on the road than SPAR2U vehicles
What do you notice? Shoprite Group has leading businesses in each of those competitive verticals. Woolworths and Boxer operate successfully at either end of the spectrum. As for Pick n Pay and Spar, their businesses are on life support.
Sure, they compete to some extent in these verticals — like an excellent Spar having a unique assortment or Pick n Pay achieving growth in on-demand grocery in the Asap! app — but the pain is clearly visible. Both companies are deep in turnaround hell.
There’s another thing that Pick n Pay and Spar have in common: franchise footprints. Spar is exclusively a franchise model (or a guild of independent retailers, to be precise), while Pick n Pay has a footprint that is evenly split across company-owned and franchise stores. In an environment of on-demand retail, this has proved to be far more of a burden than a benefit.
It’s easy enough for a restaurant franchise champion like Famous Brands to compete in this environment, as it can plug into Uber Eats with a limited menu and a customer base that knows what it’s getting. If you order a King Steer burger, any of the outlets can do it and the underlying ingredients are never out of stock.
But in grocery retail, it’s a different story. Without visibility on store-level data, backed up by great enterprise resource planning (ERP) systems, it’s extremely difficult for the retailer to offer a meaningful on-demand service. And as we’ve seen at Spar, implementing a proper ERP system can bring major disruption to the operations. This necessary evil requires surgical execution, something that has been sorely lacking at Spar.
Woolworths bought out its franchisees in 2010. It might have been the best decision it has ever made, as it can now take the fight to Checkers across both quality and convenience. Pick n Pay is doing a decent job in fulfilment, but Asap! is being hamstrung by the broader damage done to the Pick n Pay brand. As for poor Spar, I’ve seen more sports cars on the road than SPAR2U vehicles.
Will grocery franchises even exist in a few years? And why would any prospective franchisee apply for a Pick n Pay or Spar right now vs finding a suitable site for an OK franchise and climbing into bed with Shoprite?
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