Differentiating factors between formats and the rise of the midi-wholesaler

The informal retail¹ sector operates via various channel formats, such as hawkers, small and large spazas, spazarettes, superettes and midi wholesalers that vary in size, product range and value-added services offered. These channel formats are essential to the ecosystem of informal retail as they all contribute significantly to the South African FMCG informal market, whose value was estimated to be worth R157bn² in 2019. 
The informal sector is dynamic, nuanced and forever evolving, making an understanding of the key differentiating factors between channels and formats an important part of winning in this sector. 

Store format: 
Formats range from table-top offerings along the roadside (i.e. no physical brick and mortar store), on foot trading, small container-service stores, window stores, stand-alone, walk-in self-service stores with between one to four pay points and with one to five aisles.
The formats are located in township, rural and urban (CBD – high traffic) areas, in close proximity to shoppers’ homes, schools, taxi ranks, offices, industrial areas and retail communities. 

Traders consist of a small proportion of local South African traders (male and female), while foreign (male) traders make up the majority of informal independent retailers. These retailers have been in business anywhere from 3 – 35 years.
There are more female traders operating on a smaller scale as hawkers or who own small spazas. Male traders often operate the larger formats – large spazas, spazarettes, superettes and midi wholesalers.

 

The informal independent shopper is male or female and fairly spread across all ages. They can be low, medium and high-income earners, who are either just passing by, or they may be taxi drivers, local and travelling workers, children and/or school children. As a result, profile of the shopper is often location dependent. 
The shopper profile differs at midi wholesalers, however, shifting from general shoppers to independent traders, general dealers, catering establishments, small informal traders and hawkers.

The range offered by hawkers varies greatly and spans from a narrow specialist range to fruit and vegetables, clothes, medicine, mobile phone accessories, fast food and snacks, beverages, cigarettes, as well as hair products and pieces.
Other channel formats offer a wider range of products varying in quantity, including groceries (perishable and non-perishable), limited fresh fruit and vegetables, commodities, home and personal care, snacks, confectionery, soft drinks, limited homeware and hardware, ATMs, limited-service departments such as kasi foods.

This depends solely on the shopper’s disposable income and product prices. It ranges from R1 – 100 (hawker and small spaza), R20 – R500 (large spaza, spazarettes), R50 – R1,000 (superettes), R500 – R10,000 (midi wholesalers).

For a more detailed view, as well as insights and opportunities for suppliers within the informal independent sector, subscribe to the Trade Intelligence Informal Independent Sector Report or attend our retail briefing on 20 May 2021. Click here for more information. 

The rise of the midi-wholesaler

Midi wholesalers, also referred to as cash & carrys, are a hybrid (catering to the general public, as well as to traders) walk-in self-service wholesale outlet, predominately owned or managed by foreign male traders. They are not as big as formal wholesale outlets, nor do they have direct access to suppliers’ stock, discounts and rebates. These midis stock specialised products or a wide range of groceries which include perishable and non-perishables, commodities, fresh, dairy, home and personal care, snacks, confectionery, soft drinks and general merchandise (homeware & hardware).

There has been a major shift within the informal sector over the past decade, with some foreign traders growing out of the smaller informal channel formats into midi wholesaler formats. 

Midi wholesalers are fast becoming the go-to wholesaler store as they are organised and very well managed. They are located close to smaller retailers (hawkers and spazas) in the township, shoppers’ homes, catering companies, school feeding schemes etc., which is key to their growth and success. Their location assists shoppers to save on transportation costs, enabling them to spend more and make more frequent trips to midis than they would if they had to travel to formal retail stores and wholesalers often located further away. 

There are approximately 500 midi wholesalers in South Africa, 400 of which are hybrid stores, while the remainder are specialist wholesalers offering a narrow/specialist range e.g. just sweets, biscuits and snacks. These wholesalers are reported to make between R200,000 – R1 million per day³

Midis are a growing, yet often logistically difficult channel to access for suppliers and manufacturers. However, they present a significant opportunity for those businesses seeking growth and visibility in the informal sector. There are a few manufacturers who are getting it right, selling and distributing products directly to the midis, enjoying encouraging growth alongside this relatively new format.

A significant potential growth area for midi wholesalers is the development of private label products. In their search for ways to grow revenue, many midis have started manufacturing and producing their own brands of cost-competitive products. 

Into the Future
With midi wholesalers disrupting the more traditional formal wholesale trade, it will be interesting to see how they transform this channel over the next 10 years. Businesses that seek to participate in this transformation must understand that the best way to win is to identify the key players in this channel in order to collaborate and partner with them. Organisations like the South African Informal Traders Alliance (Saita) and the Somali Community Board of South Africa can assist in establishing strong networks and contacts in the informal spaza shop and midi wholesaler channel useful for entry and growth into this sector. 

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Notes:

1. Not unique to South Africa, informal retail refers to retailing activities within the informal sector that are not taxed, monitored, and fully protected by government. In South Africa, this channel exists where financially strained, poor and underprivileged communities are found, such as in townships and rural areas.
2. Trade Intelligence Estimate 2019
3. Estimate provided by Abdirizak Ali Osman, Secretary General of the Somali Community Board of South Africa, as presented at the 2021 Marketing Mix Township Summit