NielsenIQ: SA FMCG sector saw 14% rise in annual sales to R547bn

South Africa's retail sector is facing unique challenges due to the ongoing power crisis and rising inflation rates. Despite these obstacles, the industry has shown resilience and adaptability, as evidenced by a 14% rise in annual sales to R547 billion. In a recent interview with Ged Nooy, the NielsenIQ South Africa MD, key insights were shared regarding the current state of the nation's retail market. Nooy highlighted some of the significant findings from their latest report, emphasizing the impact of these challenges on various aspects of the sector. One of the standout trends observed was the remarkable rebound of the alcohol category, which experienced a 36% growth compared to the previous year. However, it was noted that this growth was relative to a low base year due to lockdown restrictions. The report also revealed a concerning trend of high food inflation, currently sitting at around 13%, with cooking oil showing a significant 38% increase and bread inflation at 17%. The surge in electricity costs has put pressure on manufacturers, especially those in low-margin categories like commodities. To cope with these challenges, consumers are shifting towards purchasing lower inflationary shelf staples such as rice and maize meal, which have longer shelf lives. The power crisis has also had a notable impact on smaller manufacturers in the country. While many are struggling with power generation issues, smaller businesses within the top 20 to 50 from a sales perspective have shown a remarkable 14% growth, outperforming their fair share contribution to the market. This resilience is attributed to their ability to adapt quickly to power challenges. Another interesting shift has been observed in the traditional trade sector, where sparsers, who do not rely heavily on mass refrigeration, are at an advantage. As a significant portion of the population does not have refrigerators, the demand for non-perishable items like maize and rice has increased, leading to a change in consumer buying patterns. Looking ahead, Nooy anticipates the continuation of the 'homebound economy' trend that emerged during the pandemic, with consumers prioritizing staples over discretionary spending. Additionally, a rise in convenience shopping is expected, with more consumers opting for top-up shops in proximity to their homes to save on travel costs. Manufacturers are urged to innovate amidst the ongoing power crisis, with suggestions to develop products that do not rely heavily on electricity, such as longer-life variants of traditional chilled products. The potential for increased online sales is also on the horizon, as consumers, particularly those with means, are showing a growing interest in online shopping options provided by major retailers. While South Africa's online market is still emerging, initiatives like 'brick and click' are gaining traction, with online sales projected to capture 3 to 5% of the market in the near future. As the retail sector navigates these challenges, adaptability and innovation will be key to driving growth and meeting changing consumer needs.