by GG Alcock
Like the movie The Matrix, the informal economy is invisible but all around us, like a mist drifting by our car windows, hanging around on street corners, covering the townships. It is growing in an urgent organic pace unmatched by the formal sector.
- There are 50 000 informal food takeaway outlets selling everything from the township burger called a kota to vetkoeks, shisa nyama’s and amaplate food trucks where the top outlets can turn over up to R 50 000 a day 7 days a week, worth in excess of R90 Billion a year.
- The muti market is worth R18 Billion in turnover and employing almost 150 000 people and serving 27 million customers,
- There are more than 100 000 spaza shops (informal FMCG retailers) turning over more than R 200 Billion a year,
- There are 500 000 hawkers or tabletop vendors earning on average between R 1 500 to R 3 000 each a month in profit,
- The market has 150 000 hair salons ranging from home backrooms to colourful corrugated iron dunusa (bare bum style) selling hair pieces and stylings worth millions every weekend,
- And there are a multitude of other businesses in these
- Building and home services – kasi building, renovations, gates, burglar guards, chrome gutters etc
- Services – hair salons, plumbing, electricians, catering & event suppliers, hire of tents, toilets and chairs
- Retail – kasi kos, spaza, on-con liquor, tabletops
- Automotive – taxi, kasi mechanics, vehicle services, panelbeating, car wash, tyres, sound systems
- Cultural – muti, livestock, sangoma, inyanga, unveilings, funeral,
- Rental / Property – backroom & spaza rental,
- Financial – mashonisa, stokvel, masicwabisane
But like The Matrix, this trade and its scale is invisible to us, we don’t see its gleaming corporate headquarters, we don’t recognise its multitudes as they are in a caravan on the side of a road, a pile of veggies on a crate or a little chemist under a highway bridge. Yet in many ways our economy is being sustained and driven by this sector. Not only are these outlets and traders paying VAT on their substantial purchases but they are employing people and bringing in household incomes on a massive scale. In most cases, the average Rand circulates more often in a township informal economy than a formal one.
Recent Nielsen research shows that, 20% of all money spent in SA is spent in informal stores, but most importantly, increasing at 7% per annum vs formal stores at 4%.
The scale, profitability and potential of the informal sector is totally unquantified. It’s invisible, seen out of a car window and considered insignificant, subsistence and survivalist. There is a large percentage of profitable, successful and sustainable businesses among them, but no one sees this.
The informal sector is and will increasingly disrupt traditional formal business models. To participate in this sector, business management teams need to open their eyes to this different economic world, to adapt trading terms and business relationships to a more fragmented customer base, to offer products and solutions relevant and suited to shopper patterns and consumer lifestyles.
Franchised retailers and food franchises can access this market, but they have to think about it differently. Instead of pushing their own brands, they should consider what this informal market trader needs. Like franchisees, they need access to collective buying and distribution. What would happen if one of the major retailers started to supply the spaza stores, not in the form of their own branded stores, but rather on the basis of wholesale and distribution support? What if a food franchise group provides similar support to the sellers of kotas, vetkoeks and other kasi food? Similarly, automotive groups and building and hardware retailers could access this massive market on the same basis. Instead of reinventing the wheel and creating their own branded solutions, they can tap into a market that is already there. Add some basic retail and finance training (typically offered by franchises) and you have a market that is not only well supplied but also well supported and equipped with skills. This will take agile thinking and going against the conventional route to market most retailers follow, but the results could be astonishing.