Required Report - public distribution

**Date:** 11/15/2005

**GAIN Report Number:** SF5040

SF5040

**South Africa, Republic of**

**Retail Food Sector**

**Retail Food Sector Report**

**2005**

**Approved by:**

![](media/image1.wmf)Scott Reynolds

U.S. Embassy, South Africa

**Prepared by:**

Margaret Ntloedibe

**Report Highlights:**

South Africa's economic situation and strength of the rand continue to
improve, increasing opportunities for U.S. food products in South
Africa. The South African retail market consists of a few major
supermarkets chains, convenience chains, and some independent stores.
Currently 54% of retail sales occur in majors supermarkets chains,
Shoprite, Pick n Pay, Spar and Woolworths. It is predicted that this
figures will reach 60% in 2008, which is in line with the global trends.
Increased growth in all corporate stores is predicted, as well as an
increased growth in franchise and voluntary groups. The awarding to
South Africa of the 2010 Soccer World Cup is expected to result in \$350
million in improvements and investment projects, and that will result in
further growth in the food and beverage sector.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Pretoria \[SF1\]

\[SF\]

**TABLE OF CONTENTS**

**Section 1. Market
Summary.......................................................... Page 3
of 16**

1.  **Advantages and Challenges Facing U.S. Products in**

> **South Africa ......................................................
> Page 6 of 16**

**Section 2. Road Map for Market Entry
......................................... Page 7 of 16**

**2.1 Supermarket
........................................................ Page 7 of 16**

**2.1.1 Entry Strategy
.................................................... Page 7 of 16**

**2.1.2 Market Structure ...............................................
Page 8 of 16**

**2.1.3 Major Supermarket profile ................................ Page
8 of 16**

**2.2 Convenience Stores .............................................
Page 11 of 16**

**2.2.1 Entry Strategy
.................................................. Page 11 of 16**

**2.2.2 Market Structure .............................................
Page 12 of 16**

**2.2.3 Major Convenience stores profile ..................... Page 12
of 16**

**2.3 Traditional Markets ..............................................
Page 12 of 16**

**2.3.1 Entry Strategy
................................................... Page 12 of 16**

**2.3.2 Market Structure ...............................................
Page 13 of 16**

**2.3.3 Traditional market profile .................................
Page 13 of 16**

**Section 3. Competition
............................................................... Page 13
of 16**

**Section 4. Best Products Prospects
............................................ Page 14 of 16**

A.  **Products present in the market which have good sales**

> **Potential
> ................................................................ Page
> 14 of 16**

B.  **Products Not Present in significant quantities but**

> **Which have good sales potential .......................... Page 15
> of 16**

C.  **Products Not Present Because They Face Significant**

> **Barriers
> ..................................................................
> Page 15 of 16**

**Section 5. Post Contact and further information
........................ Page 16 of 16**

**Section 1: Market Summary**

South Africa, with a population of around 45 million people, possesses a
modern infrastructure supporting an efficient distribution of goods to
major urban centers throughout southern Africa and well-developed
financial, legal, communications, energy, and transport sectors.
Although South Africa's economy has grown slowly and steadily in each of
the past 45 quarters, the value of the rand has fluctuated widely
against world currencies, causing food retailers to continually update
their selection of imported and locally produced items. There are many
players in the food retail industry in South Africa. On the high end
South Africa has highly sophisticated retail chain supermarkets such as
Shoprite-Checkers, Pick n Pay, Spar, Woolworths; wholesale outlets such
as Makro, Metro, Trade Center, Cash & Carry; independent stores such as
Biforce Group, Bargain Group, Shield Wholesalers; convenience chain
stores including forecourts (gas stations with convenience type stores);
traditional stores which includes independent stores such as general
dealers, cafes, spaza shops, street vendors, hawkers, tuck shops, and
primitive little street corner stalls at the other end of the retail
sector. The South African food and beverage market is becoming
increasingly sophisticated and is supplied by both local and imported
products.

South Africa's economic situation and strength of the rand continue to
improve, increasing opportunities for U.S. food products in South
Africa. The South African retail market consists of a few major
supermarkets chains, convenience chains, and some independent stores.
According to ACNielsen Research, currently 54% of retail sales occurs in
the major supermarkets chains, Shoprite, Pick n Pay, Spar and
Woolworths. It is predicted that this figures will reach 60% in 2008,
which is in line with the global trends. The food retail sector
continues to expand, while supermarkets, convenience stores and
forecourts are rapidly becoming the dominant food retail outlets. A boom
in the franchise sector, convenience stores, and forecourts, which are
good venues for imported products, provide better access and convenience
for the consumers.

The awarding to South Africa of the 2010 Soccer World Cup is expected to
result in \$350 million in improvements and investment projects, and
will impact the overall growth in the food and beverage sector. Best
prospects for U.S. products include several high value products like
almonds, cultivated ginseng root, canned salmon, American bourbon
whisky, new oak staves for wine barrels, sauces and frozen food
preparations. These items have shown consistent growth over the last
five years and represent important opportunities for U.S. exporters.

South Africa has a two-tiered economy, one rivaling other developed
countries and the other with only the most basic infrastructure. It can
be characterized as a productive and industrialized economy that
exhibits many characteristics associated with developing countries,
including a division of labor between formal and informal sectors-and
uneven distribution of wealth and income. The formal sector, based on
mining, manufacturing, services, and agriculture, is well developed.

Retail trade outlets in South Africa offer the full spectrum available
in the United States. These range from the neighborhood convenience
drugstore (called cafés), to the small general dealer, specialty stores
handling a single product line (for example, clothing, electronics,
furniture), exclusive boutiques, chain stores (groceries, clothing,
toiletries, household goods), department stores, cash and carry
wholesale-retail outlets, to co-operative stores serving rural areas.
About 90 percent of inventories of consumer-ready products in these
stores are domestically sourced. A major phenomenon in South Africa has
been the evolution of hypermarkets, which sell large quantities of
almost all consumer goods on a self-serve basis. The hypermarkets,
located in suburban shopping centers/malls, have disrupted the
traditional distribution chain by purchasing directly from manufacturers
and bypassing the wholesaler, and with low margins achieving high
turnover, thereby placing price pressure on all competing outlets.

Many U.S. exporters of consumer goods sell directly to South African
retail organizations, such as department stores, chain stores, and
cooperative groups of independent retailers, which assume the functions
of wholesale buying, selling, and warehousing.

It may be necessary to appoint an official after-sales agent for
products of a technical nature in South Africa. This may be a company
that does not import or market the product in question, but rather,
because of its geographical reach, technical abilities and goodwill in
the market, acts as the certified service agent. Appointing an
appropriate after sales agent is crucial in ensuring that the product
develops a respected reputation in the South African market.

South African food retailers serve a wide range of consumers. At one
end, there are supermarkets very similar to those found in the United
States. These shops provide most of the products and services found in
U.S. grocery stores like processed foods, packaged meats and fancy
produce. Some South Africans enjoy purchasing organic products and
vegetables, a fast growing segment of the retail food market (lead by
organic baby food). Many supermarkets serve pre-assembled meal items
such as roasted chickens and cut vegetables ready for soup, stir-fry,
salads etc, while others sell ready-made meals like sandwiches and
sushi.

At the other end of the economic spectrum, consumers are also well
served by a thriving informal sector. Spazas are independent grocers
that are typically found in townships and generally specialize in staple
foods like cornmeal, rice, cooking oils and meats. They may also sell
soft drinks and other low-priced consumer oriented goods. The food
retailer Pick n Pay has infiltrated the township market, and has opened
stores in township areas, places that have been historically underserved
by large supermarket style stores.

**Consumer Tastes and Preferences**: Despite the variety of options
available to South African consumers, price sensitivity rules their
behavior. A source survey in 2003 found that 47.8% based their decisions
on price and 16.9% buy store brand (generic brand) items because they
are good value for money. Only 13.4% mentioned quality as a motivator,
while 4.3% perceived the store brand to be equal to name brand items.
Products that are successful with store brand labels include milk,
syrups, dry pasta, nuts, canned fruits and jellies.

Although many South Africans choose products according to price,
consumers in townships often demonstrate contradictory demands and
characteristics. For example, spazas and other informal shops tend to
only supply leading brand items because their customers demonstrate
strong brand loyalty. Adding to this trend is the fact that the black
population's buying power is increasing. On the other hand, product
attributes that may help a product succeed in township markets are less
expensive and/or single service package sizes and ambient-stable
products that do not require refrigeration. A local research company
recently reported findings that confirm this, stating, "we have heard
for the past 20 years that the \[low income\] consumer wants smaller
packaging, but it is still amazing how many manufacturers do not heed
that call."

South Africans love meat, and barbeque, called braai, is very popular.
Braai products, such as sauces, are also popular, especially sweet and
spicy flavors. A wide variety of meats are available, such as beef, beef
sausages, lamb, game meats, and poultry. Fish is also gaining popularity
as consumers are seeking healthier alternatives to meat. (South Africans
eat more beef and lamb than pork. It has been generalized that they eat
about as much pork as Americans eat lamb, and as much lamb as Americans
eat pork.)

According to ACNielsen research, health information is becoming an
important component of food retailing. Consumers would like to see more
health, nutritional and weight loss information in stores. These
consumers will most likely fit in the categories of:

1)  older female consumers who are interested in diet as a way to obtain
    good health in place of exercise,

2)  young people and high Living Standard Measurement (LSM) consumers
    who are becoming increasingly aware of the importance of a good diet
    and exercise in order to maintain good health,

3)  and low LSM consumers, many of whom are feeling the impact of
    HIV/AIDS on their families and are thus in need of healthy food
    products. However, due to hard financial times for poor South
    Africans, health products for low LSM consumers will not find a
    place on grocer's shelves unless they are developed as viable
    substitutes for basic staples.

An ACNielsen November 2004 study reveals that, of the 45-million South
African population Kwazulu Natal is the most populous province, but this
does not proportionately translate into retail sales. The spending power
of South African consumers is located in largely in the Western Cape and
Gauteng, which register the highest percentage of retail sales. What is
interesting is that these percentage retail figures far outweigh these
two provinces' population percentages. This would seem to reflect well
on the notion of Cape Town and Johannesburg being the country's two
biggest money spinners in terms of business, trade and industry. In
fact, 50% of the country's retail sales occur in the Western Cape and
Gauteng.

ACNielsen urges South African manufacturers to adopt a new attitude
towards pricing, as South Africa holds a high 35% volume responsiveness
level to a 10% price reduction, in comparison to the USA's 17% or UK's
20%. According to ACNielsen August 2005 studies, the Food sector is by
far the most receptive to price reduction nationally, followed by the
beverage sector. Building equity is particularly important in the Food
Sector, as consumers are more inclined to shop around for special offers
on food than they are in other sectors. On an average 750 item basket,
the difference in pricing between the most and least premium major South
African retailers is currently only 5%. This figures has come down from
7% two years ago, and emphasizes the importance of effective product
distribution to all major retailers.

A steady increase in the number of households in South Africa, which is
predicted to increase from the current number of 9.8 million to 11.2
million in 2008, signals a necessary increase in spending. Further good
news for retailers is that South Africans are not great savers of their
income. With a saving ratio of only 0.6%, as much 54% of income goes to
repaying debt, with the rest being spent. Increased growth in all
corporate stores is predicted, as well as increased growth in franchise
and voluntary groups.

**Trends in Online Sales**: Online sales accounted for only 0.14% of the
total retail market in 2004. Although the number of online retailers in
South Africa has more than tripled since 2001, about eight businesses
account for 80% of online sales. Of these eight websites, many are
associated with an established retail shop (for example Woolworths and
Pick n Pay) and other major wholesalers are able to offer specialized
services like same day home deliveries and no cost returns. The most
popular goods to purchase online are groceries, apparel and books. The
fastest growing retail categories (in descending order) are flowers and
gifts, apparel, food, beverages and groceries. Online sales in 2004
increased by 35% and were expected to increase by 25% in 2005. Also,
about 20% of 2004 online sales occurred during the November-December
holiday season.

**Food Standards and Regulations**: The Department of Agriculture has
developed food safety legislation. This food safety legislation was
developed due to food safety requirements in the international
community, for example the European Union (EU) legislation requiring
full traceability. As from 1 January 2005, all products of plant origin
for export must comply with this food safety legislation. The Department
of Agriculture is currently conducting Food Safety road shows up until
the end of November 2005, whereby all aspects relating to food safety
requirements will be explained to food manufacturers and stakeholders.

South Africa's new Liquor Act came into effect on August 13, 2004.
Effective Sunday November 7, 2004, South African Liquor outlets were
allowed to sell alcoholic beverages on Sundays.

South African farmers and manufacturers are becoming increasingly
responsive to food safety issues. As South African supermarkets and food
distributors continue to integrate their food supply chains, they are
able to better provide traceability/accountability services for
consumers. This is especially important in order to satisfy export
market demands. However, food safety has a much lower profile in South
Africa than in the U.S. or Europe, perhaps due to fewer incidents or due
to problems in identifying food safety problems. In 2002, South Africa
approved a set of food safety regulations that embrace the important
principles of HACCP and follow the Codex Alimentarius model. Under these
regulations, exports to South Africa must meet the same food safety
standards as apply to South African

food producers. For more information on HACCP, please refer to
[Regulations Relating to the Application of the Hazard Analysis and
Critical Control Point System (HACCP System)]{.underline} at

[www.doh.gov.za](http://www.doh.gov.za/), (click on documents, then
regulations.)

For further information, please read the Gain Report SF5029, the Food
and Agricultural Import Regulations and Standards (FAIRS).

**1.1 Advantages and Challenges Facing U.S. Products in South Africa:**

+-----------------------------------+----------------------------------+
| Advantages                        | Challenges                       |
+-----------------------------------+----------------------------------+
| South Africans are developing a   | Consumers may need to be         |
| taste for western foods and are   | educated in                      |
| willing to try                    |                                  |
|                                   | preparing and eating products.   |
| anything once.                    |                                  |
+-----------------------------------+----------------------------------+
| The growing retail food industry  | Acquired tastes and preferences  |
| needs imported food and beverage  | for traditional, locally         |
| products.                         | produced products.               |
+-----------------------------------+----------------------------------+
| Favorable exchange rate, strong   | Competition from other countries |
| rand with the weak dollar make    | and locally produced products.   |
| American imports more affordable. | 90 percent of products of the    |
|                                   | retail outlets are locally       |
|                                   | produced. South Africa's major   |
|                                   | retailers have joined forces     |
|                                   | with the Proudly South African   |
|                                   | (PSA) campaign, launched by the  |
|                                   | Government, to give PSA          |
|                                   | suppliers preferential tendering |
|                                   | for shelf space, and to promote  |
|                                   | South African products.          |
+-----------------------------------+----------------------------------+
| South Africa is a getaway for     | Consumers are price-conscious    |
| regional markets.                 | and some do not exhibit brand    |
|                                   | loyalty. Products must           |
|                                   | constantly be promoted.          |
+-----------------------------------+----------------------------------+
| South African consumers view U.S. | Retailers and consumers have     |
| products as high quality.         | limited knowledge about the      |
|                                   | variety of U.S. products.        |
+-----------------------------------+----------------------------------+
| South African importers seek      | Challenging for U.S. suppliers   |
| suppliers who can offer reliable  | to respond to trade lead         |
| and quality products,             | inquires in a timely fashion.    |
| consolidators of mix containers   |                                  |
| at competitive prices.            |                                  |
+-----------------------------------+----------------------------------+
| Importers and distributors can    |                                  |
| help develop brand loyalty.       |                                  |
+-----------------------------------+----------------------------------+

# Section 2: Road Map for Market Entry

**2.1 Supermarket**:

2.1.1 [Entry Strategy]{.underline}: Introducing a product successfully
depends on promotion and supporting of the product to the consumer. In
South Africa's very competitive marketplace it is essential that U.S.
exporters choose the correct agent or distributor. Evidence shows that
the most successful U.S. company ventures are those that have researched
their market thoroughly before engaging in a search for agents and
distributors. Once contacts are established it is advisable to visit
South Africa since firsthand knowledge of the market is highly useful.
Research has shown that a new opportunity in South Africa is aggressive
marketing by sampling and advertising on board local airlines.

In South Africa the terms "Agent" and "Distributor" have a very specific
meaning. Agents work on a commission basis after obtaining orders from
customers. Distributors buy and sell products directly to their
customers. It is common to appoint a single agent capable of providing
national coverage either through one office or a network of branch
offices. In addition to their role as the local representatives of U.S.
exporters, agents should be able to

handle the necessary customs clearance, port and rail charges,
documentation, warehousing, and financing arrangements. Local agents
representing foreign exporters outside South Africa who export goods to
South Africa, are fully liable under the South African Import Control
Law for all regulations and control imposed on imported products. Local
agents are required to register with the Director of Import and Export
Control of the Department of Trade and Industry. It is important for a
U.S. exporter to maintain close contact with the local agent to track
changes in importing procedures and to ensure that the agent is
effectively representing his or her interests.

**2.1.2 [Market Structure]{.underline}**[:]{.underline}

Basic flow of imported food products:

-   Retail supermarket chains maintain their own distribution systems,
    using warehouses to allocate goods to supermarket branches.

-   Depending on the arrangements, in some instances imports are handled
    by the supermarket chain's head office or by branches themselves.

-   Trends in the distribution channels show that some of the
    supermarkets are moving toward outsourcing the services of
    warehousing and transportation.

**2.1.3 [Major Supermarket profile:]{.underline}**

Below is a chart of South Africa's major supermarket chains. For the
most part, they offer much the same range of products and brands.
Gaining a competitive edge through image and service is their major
preoccupation. The retailers work hard at establishing their own
particular appeal. Some, like Woolworths and Spar, do this by targeting
a particular shopper segment, such as upper income groups. Others, like
Pick n Pay and Shoprite-Checkers group, go head-to-head more on price
and "shopping experience".

One common characteristics among these retail groups is enormous
bargaining power. They are all able to dictate their buying terms to
suppliers who are expected to deliver products to central depots or
warehouses, where the products are then distributed to supermarkets and
retail outlet stores. Shoprite-Checkers and Spar, for example, are very
strong in the black areas (townships) whereas Woolworths is stronger in
the smaller "up-market" segment. Most supermarkets sell their own-label
products as well as manufacturer's brands. The retail industry prefers
to buy directly from local manufacturers. For imported products, some
supermarkets prefer to deal directly with U.S. companies, because an
import agent or a distributor acting as a middleman can add up to 30% to
the cost of the product, resulting in less margin for the supermarket.

+-----------+----------------+--------+--------+--------+------------+
| Retail    | Ownership      | Sales  | Number | Lo     | Purchasing |
| Name      |                |        | of     | cation | Agent Type |
|           |                | (\$Mi  | O      |        |            |
|           |                | llion) | utlets |        |            |
+-----------+----------------+--------+--------+--------+------------+
| Pick n    | Local          | Not    | 420    | Nati   | Direc      |
| Pay       | /International | ava    |        | onwide | t/Importer |
| Group:    |                | ilable |        |        |            |
|           |                |        |        |        |            |
| \- Pick n |                |        |        |        |            |
| Pay       |                |        |        |        |            |
| Hypers    |                |        |        |        |            |
|           |                |        |        |        |            |
| \- Pick n |                |        |        |        |            |
| Pay       |                |        |        |        |            |
|           |                |        |        |        |            |
| Supers    |                |        |        |        |            |
|           |                |        |        |        |            |
| \- Pick n |                |        |        |        |            |
| Pay       |                |        |        |        |            |
| Family    |                |        |        |        |            |
|           |                |        |        |        |            |
| \-        |                |        |        |        |            |
| Ritevalu  |                |        |        |        |            |
|           |                |        |        |        |            |
| \- Score  |                |        |        |        |            |
|           |                |        |        |        |            |
| \- Pick n |                |        |        |        |            |
| Pay       |                |        |        |        |            |
| M         |                |        |        |        |            |
| inimarket |                |        |        |        |            |
|           |                |        |        |        |            |
| \-        |                |        |        |        |            |
| Boardmans |                |        |        |        |            |
|           |                |        |        |        |            |
| \-        |                |        |        |        |            |
| Franchise |                |        |        |        |            |
|           |                |        |        |        |            |
| \- Pick n |                |        |        |        |            |
| Pay Gas   |                |        |        |        |            |
| Centers   |                |        |        |        |            |
+-----------+----------------+--------+--------+--------+------------+
| Shoprite  | Local          | Not    | 834    | Nati   | Direc      |
| Holdings: | /International | ava    |        | onwide | t/Importer |
|           |                | ilable |        |        |            |
| -Shoprite |                |        |        |        |            |
|           |                |        |        |        |            |
| -Checkers |                |        |        |        |            |
|           |                |        |        |        |            |
| -Checkers |                |        |        |        |            |
| Hypers    |                |        |        |        |            |
|           |                |        |        |        |            |
| -Usave    |                |        |        |        |            |
|           |                |        |        |        |            |
| -OK       |                |        |        |        |            |
| Furniture |                |        |        |        |            |
|           |                |        |        |        |            |
| -House &  |                |        |        |        |            |
| Home      |                |        |        |        |            |
|           |                |        |        |        |            |
| -Hungry   |                |        |        |        |            |
| Lyons     |                |        |        |        |            |
|           |                |        |        |        |            |
| -OK Foods |                |        |        |        |            |
|           |                |        |        |        |            |
| -OK       |                |        |        |        |            |
| Grocer    |                |        |        |        |            |
|           |                |        |        |        |            |
| -OK       |                |        |        |        |            |
| Minimark  |                |        |        |        |            |
|           |                |        |        |        |            |
| -Sentra   |                |        |        |        |            |
|           |                |        |        |        |            |
| -Megasave |                |        |        |        |            |
|           |                |        |        |        |            |
| -8 'Till  |                |        |        |        |            |
| Late      |                |        |        |        |            |
+-----------+----------------+--------+--------+--------+------------+
| Wo        | Local          | Not    | 237    | Nati   | Direc      |
| olworths: | /international | ava    |        | onwide | t/Importer |
|           |                | ilable |        |        |            |
| -W        |                |        |        |        |            |
| oolworths |                |        |        |        |            |
|           |                |        |        |        |            |
| -Co       |                |        |        |        |            |
| untryRoad |                |        |        |        |            |
|           |                |        |        |        |            |
| -W        |                |        |        |        |            |
| oolworths |                |        |        |        |            |
| (fr       |                |        |        |        |            |
| anchised) |                |        |        |        |            |
+-----------+----------------+--------+--------+--------+------------+
| Spar:     | Local          | Not    | 764    | Nati   | Direc      |
|           | /International | ava    |        | onwide | t/Importer |
| -         |                | ilable |        |        |            |
| Superspar |                |        |        |        |            |
|           |                |        |        |        |            |
| -Spar     |                |        |        |        |            |
|           |                |        |        |        |            |
| -Kwikspar |                |        |        |        |            |
+-----------+----------------+--------+--------+--------+------------+

**Pick n Pay**: The Pick n Pay Group has been one of Africa's largest
retailers of food, clothing and general merchandise for the past three
decades. Pick n Pay has about 40 percent of the South African retail
food sector. The group operates through three divisions, the Retail
Division; the Group Enterprises Division; and Franklins Australia, each
with their own Managing Director and Management Boards. The Retail
Division manages Pick n Pay branded businesses such as food, clothing
and general merchandise in Hypermarkets, Supermarkets, Family Franchise
Stores, Mini Market Franchise, Clothing, Butcheries Meat Centers, Home
Shopping); and Gas Centers*.* The Group Enterprises Division operates
the Group's other non-Pick n Pay branded group activities including
Score Supermarkets, TM Supermarkets, property franchises, Go Banking, as
well as finding new investment opportunities for the group worldwide.
Pick n Pay has a total number of 420 stores made up of 15 Hypermarkets,
115 Supermarkets, 99 Family Stores, 3 Ritevalu, 38 Mini Market
Franchise, 21 Boardmans, 116 Score Supermarkets, 3 Score Supermarkets
Franchise, and 10 Pick n Pay Auto Centers.

According to the research by M+M Planet Retail --
[*www.planetretail.net*](http://www.planetretail.net/), in 2003 Pick n
Pay was ranked number two of the top 10 retailers in Africa & the Middle
East, with net sales of USD3.3 billion with a market share of 4.5%. The
net sales only reflect the retailer's shareholdings in the countries
where they operate.

The emphasis of the supermarket division is on total convenience and
freshness, with stores aiming to add value through the fresh food supply
chain. Traditionally Pick n Pay Score supermarkets have had a presence
in townships when other retailers have stayed away. Pick n Pay is most
modest of the high-end super market chains. It may be compared to
Publix, Kroger, Victory or Safeway in the United States. Price points
are similar to those in the U.S.

**Shoprite Checkers**: Shoprite Holdings has about 40 percent of the
market and is comprised of the following entities: the Shoprite Checkers
supermarket group, which consists of 252 Shoprite supermarkets, 85
Checkers Supermarkets, 23 OK Foods, 36 OK Grocer, 132 OK Furniture
outlets, 22 Checkers Hypers, 43 Usave Supermarkets, 22 House and Home
stores, and 37 Hungry Lion fast food outlets. Through its OK Franchise
Division, the Group procures and distributes merchandise to 28 OK
MiniMark convenience stores, three 8-Till Late outlets, 64 Megasave
wholesale stores, and 94 Sentra Stores.

Checkers Hypers have a special section devoted entirely to imported
foods as well as kosher and halal sections. Price points are also
comparable to the U.S. Shoprite Checkers are similar to a Super WalMart
or a Shoppers Food Warehouse type of shopping experience.

Shoprite Checkers sends a delegation of about 50 employees to the FMI
show in Chicago in an average year. For most of these employees, their
trip is linked to a sales or performance award, but several key buyers
also attend the FMI show. If you are a U.S. company with a presence at
FMI, then it is certainly possible to meet with a Shoprite Checkers
buyer at the FMI show in Chicago.

Among South African retailers, Shoprite has the highest number of stores
in neighboring Southern and Eastern African countries. According to the
research by M+M Planet Retail --
[*www.planetretail.net*](http://www.planetretail.net/), in 2003 Shoprite
was ranked number one of the top 10 retailers in Africa & the Middle
East, with net sales of USD3.5 billion with a market share of 4.7%. The
net sales only reflect the retailer's shareholdings in the countries
where they operate.

**Woolworths**: Woolworths Holdings Limited (WHL) is a South
African-based retail group that operates locally and internationally
through two subsidiaries. Woolworths (Proprietary) Limited operates and
franchises stores in South Africa, Africa and the Middle East; and
Country Road Limited, listed on the Australian Stock Exchange, operates
in Australia, New Zealand and Singapore. Woolworths offers select ranges
of apparel, cosmetics, toiletries, footwear, jewelry and food under its
own brand name. Woolworths has 237 stores, including 111 Owned
Woolworths, 82 Franchised Woolworths, and 44 Owned and Franchised
Country Road outlets.

Woolworths caters to the wealthiest South African consumers. The
shopping experience isn't as up market as a Dean and Deluca but it's
comparable to the Whole Foods/Fresh Fields or Trader Joe's shopping
experience in the U.S. They carry a relatively small number of branded
products, instead promoting their own Woolworths branded private labeled
products. For many products, Woolworths only offers two choices, the
leading brand-name product and Woolworths own private label. Price
points are slightly higher than Checkers and Pick n Pay but relatively
comparable to similar retail markets in the U.S.

According to Wendy Hall, Business Day, during 2004/2005 Woolworths has
opened a number of forecourt convenience food stores in partnership with
Engen Gas Station to make inroads into the R4-billion equivalent \$0.6
billion 24-hour convenience retail market, which is growing at about 16%
a year. The chain store plans to open at least 24 more by the end of
2008. According to I-Net Bridge, in 2004 three different cards (a store
charge card, a cash card and a visa card) coupled with stores were
launched to boost sales and improve customer relationship.

According to the research by M+M Planet Retail --
[*www.planetretail.net*](http://www.planetretail.net/), in 2003
Woolworths (RSA) was ranked number six of the top 10 retailers in Africa
& the Middle East, with net sales of USD1.4 billion with a market share
of 1.8%. The net sales only reflect the retailer's shareholdings in the
countries where they operate.

**Spar**: The Spar organization is made up of two types of members: Spar
Retailers who are independent store owners, and Spar Distribution
Centers, which provide leadership and services to the Spar Retail
members. Both members belong to the Spar Guild of Southern Africa, a
non-profit company set up to coordinate and develop Spar in Southern
Africa. The members pay subscriptions to the Guild, which uses these
monies to advertise and promote Spar. The Spar grocery chain emerged in
the 1963 when a group of 8 wholesalers was granted exclusive rights to
the Spar name in South Africa to service 500 small retailers. A number
of mergers and take-overs followed, and today all but one of the
wholesalers are owned by the Spar Group Limited which operates 6
distribution centers that supply goods and services to 755 Spar Stores
in South Africa comprising of 102 Superspar, 474 Spar, and 188 Kwikspar.

All stores are independently owned, and many of the purchasing decisions
are made at the individual store level. Spar targets high-income
consumers and locates its stores in more up-market neighborhoods.
Shopping at a Spar can be similar to shopping at a really good Giant or
Shaw's in an up-market neighborhood in the U.S.

According to the research by M+M Planet Retail --
[*www.planetretail.net*](http://www.planetretail.net/), in 2003 Spar
(RSA) is ranked number seven of the top 10 retailers in Africa & the
Middle East, with net sales of USD1.3 billion with a market share of
1.8%. The net sales only reflect the retailer's shareholdings in the
countries where they operate.

# 2.2 Convenience Stores

**2.2.1 [Entry Strategy]{.underline}:**

Convenience is a relatively new trend in the South African Fast Moving
Consumer Goods (FMCG) market. Major wholesalers and retailers own most
of the convenience stores in South Africa, and contact has to be made
direct with wholesalers and retailers concerned. Convenience stores
operate on extended shopping hours. As with supermarkets, success in
this field depends on actively promoting the product to the consumer.

Currently, more stores are trading seven days a week, creating a greater
opportunity to reach shoppers. Allied to this, Sunday trading is
becoming increasingly important as the trend towards convenience
continues. Month-end shopping remains extremely significant.

South Africans certainly mirror global consumers in fast increasing
requirements for convenience. Longer working hours and the current lack
of efficient public transport accelerate the demand for portable and
prepared products. As more women enter the workplace, convenience
becomes more important. Baby foods is another of the four fastest
growing categories with an annual value growth of + 24.5%, clearly
influenced by this economic transition.

Despite requirements for convenience, South African manufacturers are
not yet fulfilling these needs adequately. Products ranges are still
limited and distributed through limited retail outlets targeted at the
higher income consumers.

**2.2.2 [Market Structure]{.underline}**:

The market structure is covered in detail under the supermarket section
of this report.

**2.2.3 [Major Convenience stores profile]{.underline}**[:]{.underline}

+-------------+----------+---------+----------+----------+------------+
| Retail Name | O        | T       | Number   | Location | Type of    |
|             | wnership | urnover | of       |          | Purchasing |
|             |          |         | Outlets  |          | Agent      |
|             |          | (\$M)   |          |          |            |
+-------------+----------+---------+----------+----------+------------+
| OK          | Con      | Not     | 102      | Na       | Direc      |
| Franchise   | venience | av      |          | tionwide | t/Importer |
| Division:   | stop     | ailable |          |          |            |
|             | shops    |         |          |          |            |
| -Ok Grocer  | owned by |         |          |          |            |
|             | Shoprite |         |          |          |            |
| -OK Foods   | Holdings |         |          |          |            |
|             |          |         |          |          |            |
| -OK         |          |         |          |          |            |
| MiniMark    |          |         |          |          |            |
+-------------+----------+---------+----------+----------+------------+
| Friendly    | Con      | Not     | 53       | Na       | Direc      |
| Shoppe's    | venience | av      |          | tionwide | t/Importer |
|             | stop     | ailable |          |          |            |
|             | shop     |         |          |          |            |
|             | owned by |         |          |          |            |
|             | Metcash  |         |          |          |            |
|             | Wh       |         |          |          |            |
|             | olesaler |         |          |          |            |
+-------------+----------+---------+----------+----------+------------+

# 2.3 Traditional Markets

**2.3.1 [Entry Strategy]{.underline}**: Food retailers in South Africa
range from highly sophisticated supermarkets at one end to primitive
little street corner stalls at the other. Previously, predominantly
black townships were virtually unserved in terms of retail
infrastructure. The informal retail sector in South Africa is
increasingly recognized by manufacturers and wholesalers as an important
delivery channel of goods to consumers. Informal market retailers cater
to the needs of the residents via independent grocery stores such as
cafes, general dealer stores and several informal South African retails
concepts (tuck shops, shebeens, taverns and spazas) including hawkers
(street vendors). With the end of apartheid, major retailers have
extended their services to these townships as well but spaza shops are
making their presence felt. Marketers saw the spaza as the beginning of
a new form of township convenience retailing, conveniently close to
consumers, and open at extended hours.

Spaza shops are defined as small retail enterprises operating from a
residential stand or home, engaged in the trading of consumer goods.
Spaza shops operating mainly in the townships are making their presence
felt in the local retail market.

The informal retail market in South Africa is an important player, with
an estimated turnover of R34-billion equivalent \$5 billion. The
informal sector is acknowledged as an important delivery channel of
goods to customers. However, the view is held that this sector may have
peaked, as more formal shopping centers are being developed in
disadvantaged areas. Currently, more stores are trading seven days a
week, creating a greater opportunity to reach shoppers. Allied to this,
Sunday trading is becoming increasingly important as the trend towards
convenience continues. Month-end shopping remains extremely significant.

On average, start-up investment for spaza shops amounts to less than
\$1000 mainly financed by private savings or loans from relatives or
friends. Average employment amounts to almost 3 employees per business.
Considering that the number of spazas may amount to over 100,000, this
sector of the national economy could be providing between 230,000 to
290,000 jobs, and supporting more than a million people. The most
important products sold by spaza shops are (in descending order): soft
drinks, cigarettes, paraffin, candles, maize meal, alcoholic beverages,
bread and sugar.

There is now growing awareness among manufacturers and producers of the
importance of the spaza retailers as a marketing channel. More than 20%
of spaza owners report that products such as soft drinks, dairy and
bakery products are now delivered to their shops. The most serious
problems encountered by spaza owners are shortage of trading
stock/finance (38.8%), high levels of crime and robbery (25%), severe
competition (20.6%), expensive transport (19.7%), and bad debt or the
granting of too much credit (17.1%). Although spaza retailers are often
seen as survivalist enterprises, it is clear spazas are becoming not
only a permanent phenomenon on the South African economic scene, but
more sophisticated and closely linked to the rest of the economy than
commonly perceived.

**2.3.2 [Market Structure]{.underline}**: The market structure is
covered in detail under the supermarket section of this report.

**2.3.3 [Traditional Market profile]{.underline}**: Wet markets in South
Africa have traditionally been similar to those in most developing
countries. Informal market retailers cater to the needs of the residents
via cafes and several informal South African retails concepts (tuck
shops, shebeens, taverns and spazas) including hawkers (street vendors).
With the end of apartheid, major retailers are extending their services
to these townships as well, but spaza shops are still critical for
township convenience retailing.

# Section 3: Competition

**Exports:** South Africa's agricultural exports for 2004 reached a
total of \$4.496 billion, up from \$4.051 billion in 2003. South
Africa's five largest export destinations were the U.K. (\$562.223
million), Japan (\$486.588 million), the Netherlands (\$437.157
million), Italy (\$222.317 million) and the United States (\$202.419
million). South Africa's most important exports to the United States are
fresh citrus, wine, tree nuts, fruit juice, lobster, non-coniferous wood
chips, and value-added wood products.

[]{.mark}

**Imports**: South Africa's total agricultural imports for 2004 rose to
\$2.877 billion from \$2.1 billion in 2003. The leading suppliers were
Argentina (\$454.884 million), Brazil (\$283.776 million), the United
States (\$239.91 million), Thailand (\$197.445 million), and Malaysia
(\$161.833 million). South Africa's major imported agricultural
commodities from the United States in 2004 were wheat, coarse grains,
other prepared foods such as frozen and canned vegetables, other
intermediate agricultural products, hardwood lumber and hides & skins.

Market promotions by other European countries such as the United Kingdom
are similar to USDA organized programs such as food shows, in-store
promotions, and trade missions. South Africa's major retailers have
joined forces with the Proudly South African (PSA) campaign, launched by
the Government including the South African Bureau of Standards Holdings
(SABS Holdings), to give PSA suppliers preferential tendering for shelf
space, as well as to promote South African-made products and services.

# Section 4: Best Products Prospects

**A. Products Present in the Market Which Have Good Sales Potential**:

Five-year trends show that some U.S. Consumer-Oriented Agricultural
exports to South Africa are growing. Of interest is the BICO Other
Consumer-Oriented Products sub-category, which reached a 30-year high in
2004 of \$11.4 million. Within this sub-category, other food
preparations (HS210690) have shown consistent and substantial increases.
Other high value exports that have shown sustained growth are almonds
(HS08021200), pistachios (HS08025000), canned pink salmon (HS16041100),
whiskey (HS220830) and vegetable seeds (HS120991).

According to 2004 data, the United States enjoys a dominant position in
the almond, canned salmon and other food preparations markets, holding
86.27%, 69.61% and 23.95% of market share respectively. The whiskey
market is significantly different. In 2003, the U.K. held 85% of market
share while the United States held only 6.68%. However, the United
States increased whiskey exports to South Africa in 2003 and 2004 and
now holds 23.95% of the market. The U.S. has seen annual growth increase
over the past 5 years by an average of 21% per year in this sector. This
growth may be due, in part, to a South African preference for
successfully promoted American branded products (Jack Daniels, for
example). This preference is expected to continue and should help other
American products be more competitive in South Africa. This along with
successful marketing techniques and brand awareness may lead to the
growth of other American-branded, high-value products.

  -------------- ---------- ----------- --------- --------- ------------- ----------------
  Product        2004 South 2004 U.S.   Annual    Import    Key           Market
  Category       Africa     Exports to  Import    Tariff    Constraints   Attractiveness
                 Market     S.A.        Growth    Rate      Over Market   for U.S.
                 Size       (\$1,000)   U.S.                Development   

  Whiskey        114.789    16.656      239.44              United        American brands
  HS220830                                                  Kingdom has   are considered
                                                            large market  high quality and
                                                            share and a   attract new,
                                                            first mover   younger
                                                            advantage.    consumers.

  Pistachios     0.67       0.187       58.24%    Free      Iran has      []{.mark}
  HS08025000                                                69.28% Market 
                                                            Share         

  Almonds        4.815      4.154       61.22%    Free                    U.S. has largest
  HS08021200                                                              market share.

  Canned Pink    2.65       1.845       109.84%   25%       []{.mark}     U.S. has largest
  Salmon                                                                  market share.
  HS16041100                                                              

  Other Food     70.409     16.863      49.48%    Varied    []{.mark}     American brands
  Preparations                                                            are becoming
  HS210690                                                                increasingly
                                                                          popular given
                                                                          their high
                                                                          quality
                                                                          attributes

  Vegetable      11.275     3.068       10.62%    Free      Netherlands   []{.mark}
  Seeds HS120991                                            leads sector  
                                                            with 32.59%   
                                                            Market Share  
  -------------- ---------- ----------- --------- --------- ------------- ----------------

**B. [Products Not Present in Significant Quantities but Which Have Good
Sales Potential]{.underline}:**

The retail food sector continues to expand and supermarkets chains and
convenience stores are rapidly becoming the dominant retail outlets.
South Africans have always been big meat eaters, with fish often a
second choice for shoppers. The demand for fish has increased and now
more consumers are eating fish as a healthy alternative to meat as they
realize the positive benefits of adding fish to their diets.

Findings shows that pulses, breakfast cereals, pancake mix, egg
products, beverage and dairy products have good sales potential.

**C. [Products Not Present Because They Face Significant
Barriers:]{.underline}**

Most retail food products may be imported into South Africa with little
or no import restrictions. However, there are import requirements and
other factors that affect U.S. agricultural imports, mainly non-tariff
barriers, such as veterinary and health requirements, labeling, food
safety requirements, and shelf life requirements.

In July 2000, South Africa imposed prohibitive anti-dumping duties on
U.S. chicken leg quarters, an action that has virtually cut off U.S.
chicken exports to South Africa.

On September 16, 2005, the International Trade Administration Commission
(ITAC) of South Africa initiated in Notice No. 1737 of Government
Gazette No. 28011 of 2005 a sunset review of anti-dumping duties on
frozen meat of fowls of the species Gallus Domesticus cut in pieces with
bone-in originating in or imported from the United States. The review is
based on prima facie information submitted by South African Customs
Union (SACU) industry indicating that expiry of duty on December 27,
2005 would likely lead to continuation or recurrence of dumping and
material injury*.*

Earlier in 2004, the South African Poultry Association (SAPA) petitioned
the government to increase the general MFN duties on all poultry meat
products, but the government only approved an increase in the duty on
imports of poultry offal. Given the competitive pressures and
protectionist nature of SAPA, we can expect more of their appeals to the
government. But it is Brazil that has taken over from the USA as the
leading foreign supplier of frozen chicken and turkey meat to South
Africa during 2001 - 2004, and it will be interesting to see how
effectively the South African poultry industry can lobby its government
to restrict future trade from one of its closest "South-South" allies in
the field of international trade.

At this time the USDA is working with the South African Department of
Agriculture to increase the types of fresh fruit such as apples that can
be shipped from the United States to South Africa.

# Section 5: Post Contact and Further Information

If you have any questions or comments regarding this report or need
further assistance, please contact AgPretoria at the following address:

Foreign Agricultural Service

U.S. Embassy Pretoria, South Africa

Washington, D.C., 20521-9300

Tel: +27-12-431 4235

Fax: +27-12-342 2264

Email: <agpretoria@fas.usda.gov>

For more information on exporting U.S. agricultural products to other
countries, please visit the Foreign Agricultural Service's website at:
[http://www.fas.usda.gov](http://www.fas.usda.gov/)

Post acknowledges the following sources: Retail industry publications
and websites; ACNielsen Reseachers, Global Trade Atlas, and local retail
publications.