Johannesburg - The recent explosion of violence targeting foreign-owned shops in townships has once again elicited heated debate about the business acumen of township business people.
Whereas foreigners get praised for their ability to organise themselves into clubs to buy stock in large bulk at a discount, thus enabling them to price their goods more cheaply, locals have been criticised for allegedly being unable to grasp this simple business practice.
Locals, they say, should get with the programme and emulate the foreigners, instead of moaning about the competition.
With this in mind, The Sunday Independent asked the National African Federated Chamber of Commerce and Industry (Nafcoc), whose membership consists largely of small township businesses, what it was doing to help its members rise to the challenges posed by the fierce competition – challenges that are driving many out of business and rendering them unable to fend for themselves and their families.
Nafcoc president Lawrence Mavundla, who cut his teeth in business as a hawker, invited us to see how his organisation is responding to the challenge through its affiliate, the African Council of Hawkers and Informal Businesses (Achib).
Our first stop was at the massive premises of Advance Cash ’n Carry, the largest distributor of groceries and other fast-moving consumer goods in Pretoria.
Owned by the Kalla family, its customers include wholesalers, retailers, caterers, hospitals, pharmacies, retailers and spaza shops.
The massive premises are a hive of activity, with lots of traders, among them spaza shop owners, buying stock in bulk.
“We are passionate about empowering independent business owners, hence our partnership with Achib to boost spaza shops,” says Yusuf Kalla, the distributor’s chief executive.
The partnership with Achib essentially consists of organising township spazas and established shops into a “banner group” called Smartsave, which enables the township traders to buy stock in bulk at competitive prices.
“The Smartsave banner group is a no-frills franchise of Advance Cash ’n Carry. We buy in bulk to offer them good pricing. We also bring suppliers in to help them get better pricing. There are no royalties to be paid,” says Kalla.
“It is critical that traders make a decent profit. Because retailers can’t buy directly from the factories, we buy on their behalf, using our muscle. That way, we get good prices and, in turn, sell to spazas at good prices.”
Participating traders also get branded signage for their shops, branded T-shirts for themselves and their staff as well as posters advertising specials. They are served by a dedicated in-store team.
The traders meet once a month at Advance with suppliers and decide on products to be put on special. Once these are selected, leaflets announcing the monthly specials are designed and printed with the individual shops’ names and contact details. The township traders buy the leaflets at R35 for 100 copies.
The traders also get branded plastic bags and “shelf talkers” (stickers showing special-priced goods) – an unusual occurrence for township businesses.
“It’s a win-win for everybody. We and the suppliers get to make a sale and the spazas get cheaper prices and are able to compete,” says Kalla.
He put the average turnover of the spaza shops at between R5 000 and R25 000 a month. Some buy stock daily, while most stock up weekly.
Mavundla said the experiment started with 150 traders last January. It now has 230 participants.
“Achib makes a bit of money from the relationship, but not at the expense of the spazas. If the banner group buys something for R5, the spazas get it for R5. We get a percentage from the suppliers in return.”
Such has been the success of the concept that they are planning to expand it to Soweto, Limpopo, Mpumalanga, the Free State, the Western Cape and Kwa-Zulu Natal.
“The pilot has gone extremely well. The participating traders are not frightened by competition from foreign traders. In fact, they even beat them on some prices,” Mavundla says.
The next step is for Achib to get those shop owners who have since shut down their businesses to reopen.
Motshabi Pete, owner of Pete Supermarket in Lebotlhwane, near Hammanskraal, credits the banner group concept for the continued profitability of his shop.
“Competition from the foreign traders in my area is stiff. Smartsave helps me compete. The monthly specials bring customers. People are used to them and expect them.”
John Maseko, owner of MaJony’s spaza shop in Soshanguve, agrees. He says business has been good since he joined the banner group last June.
“My big competition comes from Pakistanis here. They have their own buying group and can keep prices low. They used to beat us because they buy in bulk. But now we can compete with them on price.”
Maseko says another way foreign traders are able to beat locals is by opening earlier and closing later.
“They open as early as 5.30am. I open at 7am. I can’t open earlier because I have to sleep. Besides, I don’t operate from home, unlike the Pakistanis, who sleep in their shops.”
He added that almost all the foreign traders work for themselves, whereas locals often employ staff. He employs a young woman. He says his spaza shop is only one of five that are still owned by locals in the area. “Ninety percent of the shops are now owned by foreigners,” said Maseko.
He makes good money from his business – so much that he can even afford to build three additional rooms at the student accommodation he runs on the premises this year and to pay the bond on his family home.
Maseko also believes the secret weapon that helps foreign traders to be more competitive lies in them using their passports to stock goods from wholesalers as though they are for export, thus avoiding paying VAT.
Adrian Lackay, a spokesman for the SA Revenue Service, said if that were true, the wholesalers and the retailers would be breaking the law by evading tax. However, he doubted wholesalers would do that.
“It would not make financial sense for them to not charge VAT because they (the wholesalers) would still be liable for the VAT payments, which is a lot of money,” said Lackay.
The Sunday Independent