Lesco is a good case study on locally produced goods, says Proudly SA
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By Eustace Mashimbye
I HAD a conversation with one of our members recently about the different access to market opportunities that membership of the buy local movement offers.
One with which we have struggled over the years is finding shelf space with our leading retailers for more locally manufactured items – from white goods to fast-moving consumer goods. We have had many round-table discussions with the country’s retail chains, but only a few have yielded any meaningful results.
One sector in which we've made great progress is clothing retail stores, where the sectoral masterplan has played a major part in seeing an increase in locally manufactured clothing and apparel on their shelves. The sector continues to be a blueprint that can be adopted for other sectors where we haven’t seen the same shift in favour of locally made products.
In this case we are talking about the last local manufacturer of electrical items including adapters, extension leads, light switches and the like. The company has been in existence since 1999 and employs 150 people, most of whom are disabled. We wrote recently about TFG’s new Johannesburg manufacturing plant, which is drawing its trainees from the St Vincent School for the Deaf and the dignity that employment affords a segment of society that lives largely without the hope of finding a job, and so this fact is significant.
The case study of Lesco (Light Electrical Switch Company), while it has its own particularities, is at the same time typical of many similar stories that I hear frequently from small, medium and micro enterprises in South Africa.
Lesco in the past sold their products to retailers via a distributor. Then they took their products directly to the buyers and were able on their own to access shelf space for three of their product lines in just 33 stores in one of our largest supermarket chains. For two years they supplied the stores, without taking any price increase. They have a 100 percent sales track record for the items they supply, and mark-ups of their items are as high as 55 percent with some retailers, meaning that Lesco products provide a good return on investment.
They are still stocking the stores, but cheap alternatives from China have eroded their market share and lost them a contract with another leading high street supermarket chain.
There is much work being done by the Department of Trade, Industry and Competition in partnership with organised business, driven by Trade, Industry and Competition Minister Ebrahim Patel on import substitution, with a target of 20 percent replacement for non-petroleum imports over the coming five years having been set.
Import replacement is being discussed between the government and Business Unity South Africa to ensure that when local buyers replace an imported item with a locally manufactured one, production capacity can meet demand, competitiveness remains a priority, and quality and market-related pricing can be guaranteed.
Capacity can more easily be ramped up, contends Lesco, based on a buyer’s commitment to purchase a determined number of units over a specified period of time, allowing them to achieve economies of scale and to invest on the back of proper long-term off-take agreements.
With contracts in place, targets and thresholds can be set and staffing levels managed, without the fear of fluctuating demand. Pricing can also be pre-determined, and a partnership with the retailer forged for a mutually beneficial collaboration that serves the supplier and the retail customer.
If Lesco were to make more inroads into the retail landscape of the country – including with co-branding for in-house labels – they could make a significant contribution to job creation, as could many other manufacturers of high-quality locally made products. Retailers, in turn, can claim some credit for these jobs, if they switch from Chinese imports to locally manufactured equivalents.
As far as quality assurance goes, Proudly South African can vouch for the quality of our members’ items, based on our vetting process before membership is granted
Retailers in many cases are being short-sighted in their purchasing preferences and could be accused of not seeing the bigger-picture benefits of buying local.
South Africa continues to import a wide range of goods that could and should be made here. Retailers need an economically active consumer base to provide customers, and so it is in their own best interests to grow local manufacturing, so that factories and production plants can create more jobs, which leads to more prosperity and more retail spend in their stores.
Lesco is one of many local manufacturers that are being passed over for cheap imported goods. We need, as consumers, to demand more local choices. Perhaps if we brought pressure to bear on retailers, we could collectively change the course of the economy in the same way that Mama Letta Mbulu wants us to, in her hit song Not Yet Uhuru.
We are nowhere near where we need to be if we are to improve the lives of the millions of people that remain jobless and economically hopeless.
Eustace Mashimbye is the chief executive of Proudly South African.
*The views expressed here are not necessarily those of IOL or of title sites.
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