Ogilvy South Africa

Critical factors for retail growth by Enver Groenewald

It’s no secret that, unlike other countries across the African continent, it’s the big retailers that occupy the largest spaces on the retail spectrum in South Africa. It’s also no longer news that retailers in almost every sector continue to suffer turnover loss that is directly attributable to the country having been in various levels of lockdown since March, exacerbated by diminishing consumer spend and massive job losses.

This is borne out by the findings of a November McKinsey study on South African consumer sentiment: “More than half of South African consumers have mixed feelings on the country’s economic recovery. Feeling the financial impact from COVID-19, consumers in South Africa continue to see reduction in income, spending, and savings. Discretionary spending remains subdued, as South Africans aggressively adopt habits to save money. Trading-down behaviour has grown 1.5-fold compared to the previous year across all socioeconomic classes and product categories. About 79% of South Africans have tried a new shopping behavior, and most intend to continue usage beyond the crisis.”

The impact and consequences of the pandemic will change the retail landscape and ecosystem in South Africa forever. Retailers which have not already responded fast and effectively to these changes will see their growth not only stagnate, but decline. But, it’s not too late for large and small retailers across all categories to make some important choices and decisions about their models and their brands if they want to grow in these turbulent times. While Covid continues to impact all South Africa’s retailers, it’s the smaller and smallest retailers that are being hit hardest. As well as any retailer that has not adapted their traditional ‘bricks and mortar’ models fast enough… or at all. The retailers that are going to endure and see a return to pre-Covid revenue and profitability level – and growth – soonest, are those that employ two critical shifts.

1. Omni-channel models, and why the consumer has become a moving target

Clinging to the traditional bricks-and-mortar model alone will no longer serve retailers well in ensuring a thriving, growing business. Not when consumers have experienced – and, in many instances enjoyed – the clear benefits of e-commerce and online shopping. Online channels level the playing field, meaning that both the retailing whales and the minnows have the most equal opportunity yet to vie for consumers – and to surprise and delight them – with the same or similar offerings. And, without the huge investment needed for premium, high-traffic locations and costly floor space. Consumers are being provided on a daily basis for each purchasing occasion with increased product and brand choice; comparative price-checking; and a 24/7 shopping experience with delivery options that largely suit them. No more battling traffic, no more long check-out queues and more time at their disposal to do other things.

Does this mean that bricks-and-mortar stores are a thing of the past? Certainly not. In South Africa, COVID-19 restrictions and fears, coupled with our high penetration of mobile phones and lower data costs, are a potent mix of consumer choice when it comes to how, where and when they want to shop. And, all of this is being powered by a ready and growing last-mile fulfilment army of owned and outsourced operators including Zulzi, Bottles, OneCart and more.

Much like the introduction and evolution of Chinese behemoths such as WeChat and AliBaba created the tipping point that forever changed their retail landscape and consumer behaviour, the impact of this pandemic has become South Africa’s tipping point.

Two sobering facts from the McKinsey study dictate the speed with which retailers need to make critical decisions about the most effective business models and consumer propositions for their business. Or risk becoming irrelevant and in decline: “79% of SA’s consumers have changed stores, brands and the way they shop; and, there is 90% growth in consumers who now purchase online and across most retail categories.”

Retailers concerned about the cost of employing an omnichannel model need look only to how much online retail activity is taking place among small and large operators using low-cost, easily accessible social-media platforms like Instagram, Facebook and WhatsApp. Social commerce solutions are now as effective and pervasive as big-budget ecommerce platforms. In fact, Ogilvy’s Social.Lab, which plays extensively in the social-commerce space, has grown revenue by 300% this year off the back of massive adoption of social commerce platforms by retailers.

For the smart, growth-focused retailer, it’s not an either/or situation for retailers when it comes to omnichannel, it’s most definitely a both/and situation.

2. Building and protecting your retail brand to occupy mental and emotional real estate

This is the other side of the coin when it comes to driving growth for retailers in these challenging times.

Omnichannel provides compelling choice, convenience and relevant solutions for consumers who are more informed, more demanding and under more financial and time pressure. As a consequence, doing it right and doing it well, delivers revenue and profitability growth. But not if the retailer’s brand is unknown and their consumer proposition is fuzzy or non-existent. The investment retailers make in building and protecting their brand applies equally to both the smallest as well as the largest of retail brands.

While smaller, less well-known retailers need to engage more consumers in order to grow, the growth of ecommerce and social commerce also create greater competition for even the largest and most well-known of retailers. New, smaller and more agile local retailers as well as international operators can now operate in a “boundaryless” world, connecting and transacting with consumers globally and in a way that would not have been possible with the traditional bricks-and-mortar model. Providing more compelling and much clearer propositions to more consumers at competitive price points will consistently eat away at the market share of any retailer who is not hyper-vigilant and responsive to these operators.

The most effective way for retail brands to defend against these ever-growing threats – and to grow their market share – is to optimise their investment in building and maintaining their brand. To do this means always being first to mind when consumers start thinking about a product or service they need. It means ensuring that consumers are absolutely clear about the benefits (including price competitiveness!) and experience they will enjoy when they browse and buy that product. Put together, this means relentlessly occupying more and more of consumers’ mental real estate (known generally as awareness and understanding) and emotional real estate (affinity and loyalty).

There is no more effective and efficient way of doing this than through consistent brand-building, whether through advertising or PR, through storytelling or informative content-sharing, through TV, radio, social media or the retailer’s owned media. As long as a brand is built consistently over time and remains relevant to the consumer in what it says, how it says it and how often it is said, market share will follow.

A PRC study released in November reveals that ad spend for the retail sector in SA fell from R6,9 billion in 2019 to R5,2 billion in 2020 (as at September). This drop is a clear indicator of the trading pressure all retailers have been under, given COVID-19; but also how some retailers elect to de-prioritise investment in brand awareness and market position in favour of conserving cash or supporting promotions to drive revenue.

It’s a well-known adage that you invest most in building your brand to gain market share over the medium and long-term especially when your competitors are not. In keeping a firm finger on the pulse of what resonates with consumers and a deep understanding of their business objectives and challenges, our clients and our agencies have together continued to shape effective, agile brand strategies and hyper-relevant consumer engagement. And, they have made sure that their brands maintain their market share – with both eyes on their anticipated growth in a post-Covid South Africa.