Selling & Growing Branded Consumer Goods in the South African Market: Understanding Traditional Trade

So you have a product and are looking to launch into the South African Consumer Goods Market for the very first time, or maybe you are looking to launch into a different consumer channel altogether. A few questions may arise but some of the most important questions are, Which channel do you choose? and How do you go about doing it? Depending on where you are positioned at this time, it will either be the Traditional Trade or Modern Trade channel.

Traditional Trade can be broken up into two segments, namely: Traditional Trade Wholesale and Traditional Trade Retail. Most often these segments are referred to as Independents. Independents referring to them being Independently owned and not belonging to a formal Modern Retail chain. These stores are set up in fewer locations than Modern Trade stores and are usually family owned and operated. Another interesting term used is Route to Market. A Route to Market strategy can be looked at as a method of reaching end consumers in the informal areas throughout South Africa, that cannot be reached through Traditional Trade Retail or Modern Trade stores. The most cost effective method to reach consumers in the informal sector would be through Wholesalers (usually based in industrial areas with high traffic) and Midi Wholesalers (based in the townships and are easily accessible by traders). The alternative would be to appoint an official Key Distributor which is becoming a more popular option. Both methods have their challenges. Ultimately, the goal will be to reach Supermarkets, Spaza stores, Tuck Shops, Hole in the wall stores, and Hawkers , located in areas which are difficult to access with your current distribution model.?

Traditional Trade Wholesale (TTW)

Be it Traditional trade wholesale or Traditional trade retail stores, they are usually family owned and at times 2nd or 3rd generation family members. This is great when it comes to decision making as negotiations can be concluded much quicker than in Modern Trade. Traditional trade wholesale also offers opportunities for advertising and Point of Sale material placement, which can often be negotiated rather than having to pay a pre-determined fee. There are various types of Wholesalers, some are predominately Confectionery, Hardware or Toiletry specialists. However, a lot of these Wholesalers have become Hybrid (meaning they Wholesale & Retail goods). Every opportunity must be seized! Banner stores also deserve a mention, these stores are independently owned Supermarkets or Tuck shops and are affiliated with a specific Wholesaler that usually brands these stores and provides them with credit terms, advertising material and margin advice. Some of the leaflets printed for the Banner stores have products and pricing determined in advance. Stokvels, can be explained as a buying club. Stokvel members contribute into a Stokvel account during a period and will use this money to purchase items in bulk which will be at a lower cost than what is sold in Retail stores. The Wholesaler will sell at lower margins but will move a higher volume. This can become a formal affair and Suppliers usually participate by promoting their brand of products prior to the actual Stokvel,(called Stokvel meetings) and through advertising. On the day of the Stokvel there is usually excitement created by giving away free product samples or supplier branded merchandise.

Traditional Trade Retail (TTR)

Until a few years ago, Traditional trade retail stores purchased from Traditional trade wholesale. Today, Traditional trade retail operates remarkably like the Modern Trade stores. The drive for a higher margin is constantly at the top of the agenda as they are competing directly with Modern trade stores. Some of these Traditional trade retail branded stores are chain stores and have high ambitions for the future. This cannot be ignored, and it is imperative that there is alignment with both Traditional trade retail and Modern Trade support. At times Traditional trade retail will shop between Wholesalers and Suppliers for the best price. Therefore, when a Sales Plan is developed, the relationship between these channels must be understood clearly. Traditional trade retail stores have additional costs such as operating expenses linked to additional handling of break bulk goods, and overheads attached to operating in multiple locations just like Modern trade stores. Traditional trade retail can be summarized as a channel that retails a product on a unit level versus Traditional trade wholesale, that wholesales in bulk quantities (bulk can be defined as a shrink, carton, pallet, or truckload).

Route to Market (RTM)

Attention must be drawn to how a business services their informal customer base. The informal sector in South Africa comprises of predominately Immigrant traders and it is important to understand how to appeal to these business owners. With their stores being Supermarkets, Spaza stores, Tuck Shops, Hole in the wall stores, and Hawkers , there is always going to be a challenge of limited space. Therefore, they will only keep two to three brands of a similar product (the most popular brands). They will not keep large inventories and will travel a few times a week to a Wholesaler to top up on products that have sold out. Please keep in mind that they predominately operate with cash and will shop around for the best price between Wholesalers. There are some affiliations within the communities that will form relationships with Wholesalers to get a better price than advertised. This places pressure on Wholesalers to compete when they already operate with exceptionally low margins.?

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Photo credits: Photo 1 by Dennis Siqueira on Unsplash; Photo 2 by Omotayo Tajudeen on Unsplash