Township Tuckshop Wars: How foreign traders dominate SA’s R900bn spaza market
AS communities, the government, interested and affected organisations, and bystanders call for urgent action to return the thriving tuck shop business back to South Africans, the question of how foreigners break into that economy remains.
This as, last month, cases of poisoning again emerged and were blamed on foreign shopkeepers, and as the cases spread far and wide across Gauteng and the country, with children falling sick from food and snacks purchased from the small businesses.
Surveys have shown that there is and has always been stiff competition to get a piece of the R900 billion township economy pie, with spaza shops being the cornerstones as they provide sustenance in terms of food and basic necessities.
When Sustainable Livelihoods Foundation, a Cape Town based non-profit organisation, conducted an in-depth study to understand the current characteristics of ownership and the scope of employment within the business and trading practices of spaza shops in the Western Cape and Gauteng townships, what they found included how foreign nationals relied on the strength of their social networks.
“These provide them with access to labour and capital and thus enable collective purchasing and market dominance,” the organisation said after surveying more than 6 000 microenterprises in nine localities.
Their research would take five years, during which they covered an estimated 50 000 households. And they said: “One of the most striking findings was that, in the informal economy of Township Spaza Shops, South African owned spaza shops are less competitive than foreign-run spazas.”
SME South Africa, after looking at various studies, said there was a growing concern from local business owners that much of the economic value now generated within the spaza shop market, including wages, was exported from the township economy to the home countries of these foreign entrepreneurs and workers.
“We also noted with concern that the role of foreign shops is to provide access to contraband goods,” they added.
SME identified key factors on the side of foreigners in owning and managing the spaza businesses successfully, and they found that they used supply chain networking and price discounting to procure goods more cost effectively.
“One factor is related to ownership dynamics, where while the majority of South African spazas are home-based, foreign-run spazas usually operate from a semi-detached room or from rented premises.”
They found that another differentiating factor was that a significant number of South African owned spazas were owned and run by women, while almost all foreign operated ones were male-owned businesses.
“There is also evidence of collective or cooperative ownership among foreigners. This means that the majority of foreign spaza shops are either owned through a share-holding agreement or a single entrepreneur owning several stores,” SME said.
Capital investment was another factor. The reliance on the advantage of financial backing from ownership models combined with the benefits of ethnic business networking enable foreign spaza shops to purchase within buying collectives and achieve greater economies of scale.
This increased purchasing power, together with lower unit transaction costs such as transport and labour, enables these collectives, similar to large enterprises, to secure more favourable terms from wholesalers and obtain direct supply linkages to manufacturers.
“Stock procurement is another element. An important business advantage of foreign shopkeepers, for example, lies in the semi co-operative supply system through which the shop owners procure their goods from wholesalers and manufacturers.”
Research indicated that foreign spaza businesses were successfully using supply chain networking and price discounting to procure goods more cost effectively.
“Each business thus benefits from a procurement and distribution chain that supports multiple stores, and as a result of their scale of operation, each buying collective is able to secure premium terms from suppliers and can reduce transport costs and ensure that shops within the group receive an uninterrupted supply of merchandise.”
Sole trading South Africans, research showed them, meant tuck shops were unable to match the collective purchasing power and labour advantages, and so they opted to either close their shops or focus on commodities in which they could sustain a competitive advantage.
Then there is the Business Operations aspect, which showed that some local spaza shops, such as the house shops, operated part-time to supplement other household income, while most South Africans operate their businesses themselves or draw on family labour.
“Foreign spazas conduct business on a full-time basis and provide employment to persons other than the business owner and family. Some of these employees work under conditions akin to bonded labour, which means they work around the clock as shopkeepers during the day and security guards at night, enabling them to minimise labour costs whilst employing sufficient staff to operate the business over longer trading hours,” they said.
Then there was product diversification: The success of foreigners within the spaza market has been achieved through the careful positioning of businesses to operate within particular niche markets.
“Product diversity and range have given foreign run businesses a competitive advantage, while local spaza entrepreneurs have failed to interpret this market.”
And, SME South Africa said, foreign spaza shops engaged in diversifying business through selling alcohol and installing arcade games. “This is a competitive advantage that many South African spaza owners have not yet capitalised on.”
This research by organisations comes as, since the deaths of six children from Naledi in Soweto and various other townships across the province, efforts to forcefully close foreign owned shops have been ongoing, as communities swear that they would rid themselves of the cancer that was in their midst, killing children and leaving many others sick.
ntando.makhubu@inl.co.za