Blurring lines between retailer, manufacturer

15 January 2017 - 02:00 By PALESA VUYOLWETHU TSHANDU
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Pick n Pay has launched more than 250 new private-label ranges.
Pick n Pay has launched more than 250 new private-label ranges.
Image: Supplied

The increased demand for private-label brands on the shelves of many grocery stores may see retailers taking on the role of manufacturer, posing some difficult challenges in the fast-evolving retail world.

Maryla Masojada, MD at Trade Intelligence, said there was some risk of retailers taking on the role of manufacturer in the face of innovation.

"Grocery retailers know their consumer better than the manufacturer does, as they are much closer to what the shoppers' needs are, and they are going to change the face of products on the shelf," said Masojada.

"Private label is becoming a high priority for retailers and they are pushing their own products on the shelves because it makes them more margin, it differentiates them from their competitors."

Pick n Pay launched more than 250 new private-label ranges last year to mitigate against the risk of loss of major suppliers and product ranges, while 650 products were relaunched with newly designed packing.

Masojada said retailers had started to combine two stages of production through vertical integration, for the convenience of consumers and the retailers themselves.

Boxer Superstores, owned by Pick n Pay, owns a sausage factory, which, according to Masojada, is the second-biggest sausage producer in South Africa.

Glenda Sahadow, group communications manager at RCL Foods, which produces brands such as Nola mayonnaise, Selati sugar and Rainbow Chicken, said: "RCL Foods recognises that e-commerce is an emerging trend in South Africa ... RCL foods is busy exploring e-commerce options as part of a long-term strategy."

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However, the group disputed the policy of replacing retailers as the main point of contact with consumers, saying: "RCL Foods' business model is focused on building brands, manufacturing and logistics, rather than retailing as a core focus. We do not see this changing in the foreseeable future."

Ailsa Wingfield, head of emerging markets at market researcher Nielsen, said that the shifting of retail dynamics was not as simple as the replacement of physical stores, but more a blurring of the boundaries, with consumers perhaps not being able to distinguish between a retailer and a manufacturer.

"In the physical retail environment we are already seeing brands being both retailer and manufacturer, but we will rarely find an entire basket of goods being delivered by a single manufacturer, and consumers who display complete loyalty," said Wingfield.

According to a recent report by the World Economic Forum, physical stores will continue to exist, but will require an evolved value proposition for consumers, which will see retailers adapt their physical spaces as hubs for various experiences, leisure and lifestyle activities.

Some South African retailers have already adapted to the shifting retail environment.

Woolworths, for instance, has launched free Wi-Fi in more than 85 stores in South Africa, and Pick n Pay now operates the largest internet grocery business in Africa, having built dedicated warehouses in the Western Cape and Gauteng for its online business.

David North, Pick n Pay's group executive for strategy and corporate affairs, said some trends that were specific to South Africa would result in small shopkeepers transforming their spaza shops into modern, independent stores.

"This is a response to the desire of customers for stores to be local, and be a strong part of the neighbourhood, while [offering] a better range at better value," said North.

A Woolworths spokesman said: "Customers want choice, and as a retailer our job is to provide choice and flexibility - an incredible in-store experience for those who want a tactile experience, and a seamless digital experience, both in-store and online, to offer the ultimate in convenience."

Woolworths recently invested in a dedicated "dark store", in which clothing and beauty and homeware products ordered specifically online are housed, to improve product availability and the customer experience.

According to Nielsen, e-commerce sales in South Africa account for 1% of total retail sales, but are set to triple in the next five years, driven by digital access, retailer enablement and consumer adoption.

Wingfield said: "Newly launched stand-alone e-retailers have been more successful at building capabilities to engage and enable consumers, and existing bricks-and-mortar retailers will need to do more to incorporate e-commerce into the existing, physical retail experience."

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