Value takes centre stage in South Africa’s retail sector

South Africa's retail sector has faced challenges in 2024 despite improved consumer sentiment. According to the latest State of the Retail Nation analysis by NIQ South Africa, the retail sales saw moderate increases, but the growth was primarily driven by price increases rather than increased consumption. With consumers spending nearly R637 billion on fast-moving consumer goods through traditional and modern trade channels during the year, the retail sector saw a year-on-year growth of just 3.4 per cent. Zak Haeri, Managing Director for NIQ SA, explained that high inflation rates in the country have put a strain on consumers' purchasing power. With new jobs not keeping up with the inflation rate, consumers have less money to spend, leading to price-sensitive behavior among shoppers. Innovations in loyalty programs have been crucial in driving consumer retention. Retailers have been focusing on loyalty programs that offer genuine value to consumers, as well as suppliers. By providing value back to consumers and suppliers, these loyalty programs have been effective in retaining customers and driving sales. The FMCG sector has seen high demand for private label brands, outperforming national brands. The price sensitivity of consumers and their limited purchasing power have led many to opt for private label products, which are often cheaper than branded items. South African retailers have excelled in creating strong brand identities for their private label products, leading the way for retailers globally. However, in the technology and durables sector, the declining smartphone upgrade cycle has posed challenges. With consumers less keen on upgrading their cell phones, the telecom sector, which has historically driven the tech and durables market, is seeing a decline in sales. The introduction of lower-priced devices has led to a drop in overall market value, despite flat year-on-year volumes. Looking ahead to 2025, there are positive signs of momentum in the retail sector. Zak Haeri mentioned that the last three months have shown an uptick in volume sales, particularly in the grocery sector. While challenges like potential VAT increases and global trade impacts could still pose threats, consumer confidence and business confidence are on the rise. As South Africa awaits the budget speech that could reveal potential VAT changes, the retail sector remains cautiously optimistic. The impact of any VAT increase on consumer spending patterns and retail sector growth in 2025 will depend on the segment of the population targeted and the level of price sensitivity in the market.