International vs Local Retailers: The real impact

BRAND ACTIVITY

Jan 24th, 09:05

The South African retail sector has received a significant shakeup since the announcement of Wal-Mart’s imminent entry into the field. Leron Varsha, CEO of Fore Good, leading brand builder and distributor in the FMCG sector, maintains that with South Africa’s level of expertise, retailers will hold their own against the global giant.

“Wal-Mart’s entry has driven some South African retailers to act defensively. There’s talk of cutting down on the use of local suppliers, so that they will be able to match the newcomer’s extremely competitive pricing, giving rise to the question: what’s going to happen to local suppliers? Will they continue to receive support?”

“Of course, certain retailers have implemented measures to ensure that they’re able to match the changing landscape. For example, a leading retailer has fast-tracked plans to improve systems and establish a new distribution centre.” he says.

These efforts are certainly commendable – after all, any measure made to improve a sector can only have sound benefits. Varsha believes we have been doing a good job to date.
“There are certainly lessons that can be learnt from a global retailer – but perhaps in the sense that continual improvement is always positive,” says Varsha. “As a global retailer, Wal-Mart has developed expertise in the area of negotiating with international suppliers, whilst our retailers do not operate on the same global scale.”

He believes that in most areas, South African retailers are on a par with international players, especially when it comes to addressing different consumer segments. “Another major South African retailer stands out as a case in point: In terms of addressing our diverse consumer landscape with its multiple brands, formats and offerings.”

“Added to this, South African retailers have, of late, implemented a greater focus on shopper marketing and category planning, all of which have helped to enhance systems and improve products displayed on shelf. Retailers also have solid technologies in place, producing sound information which is often put to good use.”

If our retailers’ supply chains are so lean and mean, why isn’t this reflected in prices? According to Varsha the answer lies in a fact outside of the retailers’ control: South Africa is a vast country with expensive labour and increasing energy costs. “Indeed, our land spans a territory of more than one million square kilometres – and although the density of retailers is steadily increasing, we have yet to reach the same level of density in, say, Europe. The reality is simple: ours is a costly market.”

The country’s vastness is also the reason why online retail – which has had a major boost on international industries – has made little impact locally. The cost of distribution makes this exercise very difficult. Nor does the well documented lack of available broadband help, while the fact that more South Africans access the Internet on their cell phones, rather than their PCs, also has implications for the industry. Hopefully, many of these issues will be addressed when more broadband is made available during the forthcoming years, which may in turn result in lower costs.

So what role does the distributor have to play in this scenario? “This is an issue that is steadily gaining prominence, especially with retailers threatening to cut out the ‘middle man’ in an effort to enhance the supply chain and cut costs,” says Varsha.

“At Fore Good, we go beyond the ‘Walls 'n Wheels’ / ‘Box Dropper’ mentality and strive to add value and contribute to brand building. This is complementing retailers business and category growth with a strong focus on innovation and increasing the size of the shopper basket. In many cases, Fore Good has come to function as a local office for international brands. They’ve benefited because of our local expertise and scale without necessarily having to invest in a full local operation and waiting for a long term return on investment. It would be difficult for them to grapple with day to day operations as well as the challenges of localising trade and marketing programmes that resonate with the South African consumer.”

“We’ve received numerous compliments and international awards from the multinationals which we represent; many of them highlighting our capabilities which are on par, if not better, with other developed territories. All of which goes to show that as resilient South Africans we must be doing something right. We have a wealth of knowledge, skills and expertise – and so all that remains, regardless of how the sector changes, is to carry on doing what we’re doing. The increased competition in the sector may force us to do this a little better.”
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