New research by the UCT Unilever Institute of Strategic Marketing shows that more and more South Africans are creating their own livelihoods rather than holding out for a job.
This finding is backed up by government research that shows that over the last decade, informal sector employment has grown at twice the rate of formal employment. Today, the informal sector contributes more to the economy than mining.
The Unilever study, titled Connecting with Survivors, examines how businesses and marketers can connect with the mass market - approximately two-thirds of South Africans living in over 10 million households that collectively earn less than R6 000 per month.
The researchers believe that underreporting in the country's biggest consumer segment may be drastically underestimating economic activity, and therefore consumer spending power, in the mass market, says UCT Unilever Institute director, Professor John Simpson.
"In some cases we found as much as a 1 000% difference between recorded and unrecorded figures. This means that many companies are basing their sales and marketing strategies on commonly held myths and inaccurate figures - with potentially serious consequences," Simpson adds.
While some suppliers and retailers are still performing well, many are doing so by default. He claims there has been a significant change in both spaza ownership and the distribution routes used.
"Some companies, active in the informal sector, estimate that over 80% of spazas in South Africa are foreign-owned. All over the country, traders from the rest of Africa and some parts of Asia are gaining market share in the mass market. They have trading expertise and capital, and are extremely competitive owing to their location, service levels, the appropriateness of their products, and their competitive prices. In some instances, independents are also controlling routes to market," reports Simpson.
"With slowing middle-class growth, business and marketers are ignoring the mass market at their peril. The middle class '˜bubble' has masked the fact that the majority of South Africans are still poorly marketed to, and that established brands are in a very fragile state. Local marketers have long underestimated the size and complexity of the market by focusing on wealthier consumers. The result is that some major brands have started to lose ground to lesser-known brands."
UCT Unilever Institute is best-known for its comprehensive research into South Africa's black middle class market. With growth slowing in that segment, the institute embarked on a comprehensive study of the mass market and discovered substantial change.
In the new study, researchers used numerous qualitative and quantitative research methods over a period of more than seven months, to gain insight into what the Unilever Institute terms the country's most misunderstood market.
Although millions of South Africans are considered economically inactive, the Unilever Institute's research associate, the Sustainable Livelihoods Foundation, found that in the poorer areas they surveyed, one in ten households operate some form of informal trade or service. If this trend is extrapolated country-wide this could represent well over one million small businesses.
"Some businesses, while perhaps looking unassuming, are earning six and seven digit annual figures," says Simpson. "One street trader takes home R11 000 a month from selling '˜walkie talkies' - a township delicacy of chicken feet and beaks.
"The nature of the mass market means that local consumers are always in a constant state of flux - moving between the formal and informal sectors. This, and other factors, make recording accurate spending power statistics incredibly difficult. However, our research indicates that the unrecorded spend could, in some cases, be underreported by at least 50%."
While previous indications suggest that thee formal retail sector's expansion into developing areas was beginning to meet with success, the Unilever study reveals that many poorer consumers are still reliant on informal traders - especially from the middle to the end of the month.
"To a large extent this is because fast-moving consumer goods, especially food supplies, dwindle by mid-month. Both rural and urban consumers step up their visits to spazas at this time, as spazas accommodate their needs with smaller pack sizes and other innovative sales methods to meet consumer needs.
"It's time for local marketers to revisit, rethink and retool," Simpson urges.
"One of the first things marketing students are taught is the need to '˜know the customer'. Unfortunately many companies are now realising that they don't know their customers as well as they thought they did. This lack of connection is exactly what we at the UCT Unilever Institute are addressing in our new study.
"As many marketers and businesses are still failing to properly service or connect with the majority of their consumers, we hope our latest study will show businesses that strategically servicing this market - from product development and production, to the supply chain and route to market, right through to pricing and point of sale - is not only ethically sound, but could mean a long-term increase in sales.
"With middle class growth slowing down, marketers who are complacent will miss out on opportunities for growth that the mass market provides," cautions Simpson.
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