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R7bn worth of untapped township potential

Lessons from Spaza shop owners.

JOHANNESBURG – In an industry that turns over more than R7bn annually, spaza shop township micro-entrepreneurs have a potential which cannot be ignored. Emerging as micro-convenience stores during apartheid there are now an estimated 10 000 spaza-shops spread across South Africa according to the South African Cities Studies conference paper published in 2011.

The Absa SME Index indicates that business ownership is on the rise but a majority of businesses in South Africa, two thirds, employ only one person. On average spaza shops employ between one and four people. The potential for sustainable job creation is evident. However, spaza shops exist in the informal economy meaning they exist outside of the institutional and regulatory frameworks.

Spaza shops range from survivalist endeavours to complete mini-supermarkets. Christo Botes, executive director at Business Partners says that the challenge with survivalist entrepreneurs is that they have no vision and often do not have the skills or training to move their business to the next level.

This is the current challenge being faced by local spaza shop owners in townships who are being forced to close down or are bought out by foreign spaza shop owners. The different approach to business adopted by foreign spaza shop owners has allowed them to compete against local spaza shops.

Foreign owned spaza shops purchase products in bulk or as cooperatives and sell at a lower price. Selling generic products, cheaper versions of popular brands, on special is also popular among foreign owned spaza shops. Sechaba Thinane, a shop owner in Thokoza, a township on the east rand, says that South African spaza shop owners are unable to do this because they lack a similar collaborative attitude.

Abdullah, a Somali shop owner in Thokoza says that understanding the purchasing patterns of customers is also important. “They do not buy in bulk, they buy little by little” and this is why Abdullah sells one teabag for 50 cents, sells eggs separately as well a single baby nappies. A range of other products are also sold this way.

Other Somali operated stores in Thokoza also do the same. Foreign-owned spaza shops allow their customers to purchase groceries on credit. Positioned next to or across locally owned stores foreign owned spaza shops have managed to out compete locally owned shops.

Thinane acknowledges that local store owners have been unable to respond to the competition. Local store owners have retaliated by forming committees trying to push out foreign owned spaza shops. This however, has not deterred owners. Abduallah who now owns two spaza shops in Thokoza says that he wants to grow them into a chain of supermarkets like Shoprite.

Thinane is optimistic however, he feels that local store owners can also be as competitive as foreign-owned spaza shops if locals can change their attitude to how they approach business. He says that his store has been in his family since 1958 and other stores have also been around for just as long. Thinane thinks this might have contributed to their lack of response as they thought they had a concrete position in the community.

Thinane plans to upgrade his store facilities and cater to a wider market by diversifying his product range; however he acknowledges that he would need assistance in doing this. Operating in the informal economy makes it challenging to access funding or receive any other kind of assistance. If store owners such as Abdullah and Thinane receive the assistance they need to grow their stores they could contribute to potentially 40 000 jobs in the townships.

However, Mike Schüssler, an economist at Economists.co.za, the organisation that worked on the Absa SME Index says that the results of the research are important because they highlight that not everyone is looking for a hand-out. Assisting these businesses to convert to grow could contribute to changing this perception.

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