South Africa’s largest market is its most misunderstood market. It’s a market that has been largely ignored, one dubbed ‘the same as any other’. But that is untrue. In fact, the market is a “mass of opportunity”.
Professor John Simpson, unleashing the UCT’s Unilever Institute of Marketing’s latest research project, The Majority Report, says for too long, marketers have “imposed” their preconceived beliefs on this market in the belief that “they will accept” them. “Few have been successful,” says Simpson. While there is a degree of commonality in the market, it’s “incredibly complex”.
The Majority Report looks at South Africa’s mass market — the 21.5 million adults and 14.5 million children who live in households earning R5000 or less a month; R5000 is the tipping point between poverty, and those who are climbing the ladder to the middle class.
Simpson says the spending power of the majority (he doesn’t like to call the segment the “bottom end” as it relates to the Institute’s “top end” report it issued last year) might not be powerful on a macro level, but on a micro level “it is huge”.
An interesting differentiator, he says, from large poor markets in India or Nigeria, for example, is that while South Africa’s majority are poor, they’re “not that poor”. Because of government’s huge system of social grants, infrastructure expenditure and massive drive to build houses and supply services to South Africa’s poor majority, many have houses and assets – but are cash poor.
“It’s almost a dichotomy,” he says. “These consumers live in two worlds: the formal and informal economies and they’re incredibly efficient consumers.
“These consumers’ ability to regularly dip into the formal sector has often misled local business and industry who either employ marketing strategies devised to address mass markets in developed nations, or are primarily aimed at higher income earners in South Africa.”
What he means as that consumers who belong to stokvels will buy in bulk at Shoprite, for example, at the beginning of the month. But as cash runs out in the middle of the month, they will use the informal economy, like spaza shops, to make it to month end.
“South Africa is also not a typical developing nation, as government grants provide financial stability that is often not present in similar economies. South African businesses need to understand this rather unique situation, and take into account the multifaceted set of socio-economic drivers in this market, in order to design marketing approaches that are both appropriate and supportive,” he says.
Simpson reports that the “vast majority of South African households are forced to restrict their spending by mid-month, regularly run out of money before month’s end, sometimes skip meals, and are often forced to borrow money to keep their heads above water”.
South Africa is undergoing tough times, and “if you read The Economist article, it’s going to get tougher,” he says. “And this market will feel it more than anyone else.”
The Majority Report study focuses on the 36 million-strong mass market who represent 70% of the population and who spend an estimated R220 billion annually. The study incorporates research by the University of the Western Cape’s Institute for Poverty, Land and Agrarian Studies (PLAAS), as well as the Southern Africa Labour & Development Research Unit (SALDRU) and the Development Policy Research Unit (DPRU) which are both based at the University of Cape Town.
“These consumers are poorly served by marketers,” says Simpson. “They’re poorly served by the supply chain, which is incredibly inefficient. They throw products at wholesalers, then walk away. South African Breweries and British American Tobacco are good at serving this market, mostly because if they weren’t, the illegal market would step in.”
Simpson calls the majority “the survivors” because they are “remarkably resilient consumers who have radically adapted their buying habits to cope with the stresses created by the on-going economic downturn”.
They are also taking advantage of the formal retail sector’s expansion into developing areas. On average, consumers in this segment shop at supermarkets three times a month, but still purchase goods from informal traders at least 15 times a month.
Nearly 40% of Survivor households are dependent on government grants as their main source of income. With 80% of South Africa’s children living in mass market households, 70% of social grants (approximately R70 billion) address child support. Correspondingly this market has dominance in childcare-related product categories such as baby food and baby cereal.
The mass market also maintains dominance in many other product categories, including mielie meal, sugar and canned fish. Other product categories that are high up on shopping lists include flu remedies, vitamins, chocolates, facial products, sports drinks, anti-septics and sauces. However a system of middlemen between manufacturers and consumers, especially in the urban sector, means that those in the mass market often pay much more for products than their counterparts in the middle class.
While brands like Coca-Cola are performing exceptionally well in this market, other major brands are under-represented or even absent, explains Simpson. “This stems from marketers’ misconception that it is time-consuming, and ultimately not profitable, to engage with the mass market. So over the years most marketers have been removed — both physically and emotionally — from this market.”
In the longer term, and viewed against the backdrop of the government’s strategy to create a slower and sustainable economic growth rate, marketers can simply not afford to overlook this massive portion of the population.
The research was sponsored by Tiger Brands, Nedbank, PEP, Parmalat, Multichoice and Unilver. For more information visit www.unileverinstitute.co.za