• Ashley Gandawa

Merchandising in South Africa's Informal Sector

Merchandising is just as important in informal retail markets as it is in traditional retail outlets. As a key function of retail marketing, informal markets implement merchandising in a variety of interesting ways that may be motivated by different reasons than traditional retailers.


Background on Informal Markets

The informal market in South Africa is often neglected in studies but it provides employment and income for around 2.5 million self-employed people, participants in family businesses and entrepreneurs.

Some estimates suggest roughly 1 in every 5 South Africans who work, do so in the informal sector. Of the people in the informal sector, roughly 83%, or 10 million South Africans, are paid employees.

According to a 2015 study, three of the biggest industries in the informal sector are grocery retail (colloquially known as spaza shops), street trade and fast food. Interestingly, these three sectors also happen to be highly dependant on visual displays of the products to draw the customer's attention and encourage them to buy.


Informal retail activity contributes significantly to the economic activity in most countries. Globally, informal trading can constitute up to 40% of the economy in some regions. In South Africa, around 42% of all consumer retail spending is in informal markets.


Activities in the Informal Market

Globally and within South Africa, informal retail can be divided into four different categories, all of which operate in very different ways. The first is walk-in outlets that resemble traditional retail outlets but operate on a much smaller scale. The second category is counter-service stores or kiosks. The operator of the business serves customers from inside a structure through a window or over a counter.


The third type of informal retailer is the tabletop hawkers. These are simple outdoor tables on which the hawker displays their products for sale. Lastly, there are walking street vendors, who operate in areas of high foot traffic and approach consumers with their products. The marketing needs of each of these types of informal retailers are very different and so is their approach to merchandising.


Informal Retailers Merchandising Techniques

The nature of the retailer influences both the goods they choose to stock and the way they merchandise their products. For instance, in South Africa, a walking street vendor might choose to sell refreshments at taxi ranks. They would select DIY product displays which they have rigged to be insulators to keep cold beverages cold for as long as possible as they move from taxi to taxi selling their products.


Spaza shops are a common sight in most South African neighbourhoods. They tend to flourish in areas that are far from traditional retailers and offer a convenient way for customers to get everyday goods like bread, milk and cooking oil without having to pay for transport to and from their nearest supermarket. The primary value proposition of these spaza shops is the convenience they offer customers due to proximity. As a result, their visual merchandising is designed less to promote brand awareness and maximize cart size, and more to prominently display all the products the spaza sells and make it convenient for consumers to buy what they need and go about their day.


Businesses in the informal sector, especially in the three best-performing industries ( grocery retail, street trade, and fast food), intuitively understand visual merchandising. These outlets are strategically placed within communities and have an intimate understanding of the communities they serve, and what constitutes a delightful experience for them. They use this knowledge to create product and marketing displays that showcase their products attractively.


Opportunities for Brands

It is not ideal for brands to have no control over their product image and placement in retail markets. This could negatively affect the brand as a whole, which is why brands deploy merchandisers to retail outlets to acquire and manage shelf space.


However, informal markets present a unique challenge to brands. They are too numerous, too small and often distributed inconveniently. As a result, it becomes too expensive for brands to deploy merchandisers to informal retailers. Additionally, most merchandising strategies and materials are developed for traditional formal retail environments and are poorly adapted for use in informal environments.


Considering the volume of trade that happens in the informal retail market, there is a huge opportunity for brands to innovate and devise creative ways of merchandising that are specific to the informal market. The informal sector has developed its informal merchandising techniques and these methods have results. The size of this market is too large to ignore and some brands are starting to recognize the informal sector as a new frontier for brand awareness innovations.


Specifically, brands would benefit immensely from developing visual merchandising material and techniques that are tailored to a specific type of informal retailer and will help them achieve their goals. Involving these retailers in the development process and creating tools that will functionally improve their retail operations while managing the brand's presentation will ensure a mutually beneficial relationship.


Conclusion

Informal markets have massive potential for growth if addressed correctly. However, most visual merchandising efforts by brands are generally targeted towards formal markets, leaving informal markets grossly underserved. Research can be conducted by brands to understand the informal environment. Results from that research can then be used to leverage the unique idiosyncrasies of informal retail markets to promote brand awareness and brand loyalty in new and innovative ways.


Tailoring the merchandising in informal retail spaces to the shopping habits of the people in those areas presents a significant opportunity for growth. With this knowledge, brands can produce merchandising material that works in the industry and drives brand awareness.


If you would like to explore the informal sector, please get in touch with us.


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