By: Kirsty Laschinger 
 
IN GOOD retail times, the growth in spend on durables and semi-durables should outpace that on food as consumers use debt to fund their purchases. Syd Vianello, retail analyst at Nedbank Securities, believes that - while this remains the case - the growth in food sales is accelerating and that in durables and - particularly - semi-durables it is showing signs of slowing down. If this trend continues, food sales growth may well overtake that of durables and semi-durables within the next few months.
Vianello believes there are two key factors behind this pattern.

Firstly, there has been conversion from cash and carry sales to the formal retail chains, which are captured in ACNielsen's Retail Liaison Committee (RLC) numbers. Certainly, Massmart's continued difficulties in cash and carry bear witness to this pattern, as does Shoprite subsidiary U-Save's phenomenal growth. Vianello projects that U-Save's sales will double to R1bn in the year to June 2006.

According to Liberty Properties' Melville Urdang, there is anecdotal evidence to support the contention of the growing market sector of the big chains. He says that although the retail boom has been broad based, smaller independents have not benefited as much as the major chains.

Secondly - and more importantly - consumers are spending more on food. This is not necessarily reflected in increased volumes but rather in trading up. Vianello points out that this trend is obvious in both Tiger Brands' and AVI's results and has affected all consumers across the income spectrum. To date much of this trading up - especially at the lower income end - has been driven by price deflation as consumers have been able to afford more expensive foods. In this income group there has been a marked change in the mix - for example as consumers substituted pasta and rice for maize meal. Upper income consumers are also spending more on food - particularly the time-constrained people buying more expensive prepared foods.

Now, however, the trading up process is complete, and Vianello says it will be interesting to see how it plays out.

For one thing, food price deflation is effectively at an end. Vianello argues that food inflation will pick up owing to a relatively weaker rand and increased transport costs, which will not be offset by falling input costs.

Secondly, disposable incomes may come under some pressure from higher tax and medical bills.

Interestingly, Vianello doesn't think these pressures will see consumers trading down in food purchases - as lower income groups did between 2000 and 2002. Instead, he believes that they will choose to take the pain elsewhere and that this could be reflected in hire purchase repayment patterns and increased retail debt delinquencies from next year.

In future, Vianello believes that the trading up will not be as pronounced, but food sales will continue to accelerate to maintain standards.