Convenience-food retailers cash in on SA’s time-poor big spenders

Posted On Tuesday, 11 October 2005 02:00 Published by
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ATWO-year consumer spending spree fuelled by low interest rates and higher levels of disposable income has boosted revenue across the retail sector — and the food industry is no exception.

Wendy Hall

Consumer Industries Reporter

ATWO-year consumer spending spree fuelled by low interest rates and higher levels of disposable income has boosted revenue across the retail sector — and the food industry is no exception.

Growing demand for convenience has seen prepared food products increase in popularity among South African shoppers.

As a result, Pick ’n Pay has reported a 20,6% rise in headline earnings, and Woolworths’ food sales increased 19,4% to R5,66bn for the financial year.

Fast food company Famous Brands, the holding company for Steers, Debonairs Pizza and Wimpy, lifted gross revenue 28% to R464,7m for the year.

South African households are "evolving towards the substitution of convenience food for home cooking as a way of life rather than a luxury", according to a research report by ACNielsen on food pricing and consumer purchasing in March.

However, amid fears that interest rates may rise again, retail spending increased just 3,2% year on year in July, instead of the hoped-for 6%.

This may indicate that the high demand for prepared foods, which are generally more expensive, may not be sustainable if there is an economic downswing and conditions become less favourable for consumers.

Pick ’n Pay CEO Sean Summers says there is a link between the improvement in the economy and customers’ propensity to "buy up" as their living standards improve and their disposable income rises.

"There is a clear inverted proportion between people’s improvement in employment status and the amount of available time they have," he says.

"Consumers have become accustomed to convenience and we believe the trend is ultimately sustainable."

Longer working hours, more women in the workplace and the spending power of the black middle class are among the reasons cited by ACNielsen for the growth in convenience food shopping.

Julian Novak, head of Woolworths’ food department, says that consumers are time-poor and are demanding convenience — whether the convenience of a prepared meal, ready-prepared ingredients or store location.

"There is definitely a boom and people are treating themselves to what would be considered more expensive goods," Novak says.

ACNielsen says that food inflation last December dropped to 2,3% from a high of 16,3% in February 2003. This affected food prices and consumer purchasing behaviour.

The research shows that bottled water, yoghurt and confectionery products such as biscuits have shown the most growth in the South African retail environment.

Globally, "food and beverage products that support healthy diets, weight loss and on-the-go lifestyles are among the world’s fastest growing", says ACNielsen.

Sales of refrigerated ready-to-eat meals grew 10% in 2003-04, and long-life confectionery, cake and frozen pizza sales rose 6%.

South African shoppers have bought into the global trend for healthy foods, Novak says.

"Customers are conscious of their health and this is getting stronger. With the shift to prepared meals, they are also demanding healthy prepared meals," he says.

While ACNielsen found that convenience and food retail outlets in SA are mostly targeted at higher-income consumers, it would appear that retailers are now actively seeking out new markets.

Famous Brands is to open another 240 restaurants across its southern African network in the next three years.

Woolworths says it is extending its customer base to nontraditional areas, especially historically black residential areas, and plans to open two stores in Soweto within the next year.

The company has opened a number of forecourt convenience food stores in partnership with Engen in Western Cape, KwaZulu-Natal and Gauteng to make inroads into the R4bn 24-hour convenience retail market, which is growing at about 16% a year.

It plans to open at least 40 more by the end of 2008.

Novak believes that there is still room for expansion in the South African retail market, and that "store location and how long it takes to shop are very important".

"The trend for convenience that has been developing for the past 10 years will be sustainable if we position ourselves properly," Novak says.

Publisher: Business Day
Source: Business Day

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