Pick n Pay has flagged the informal retail sector as a competitive force in the grocery retail market, the latest high-profile corporate player to validate the sector as a parallel economy demanding strategic attention from both companies and the government.
In its latest annual report, the company identified the expansion of the informal economy, alongside the removal of lease exclusivity clauses in certain shopping centres, and the growing preference for low-cost, hyperlocal shopping as shifts putting pressure on the traditional supermarket model.
It said that these dynamics, coupled with the government-backed R500m Spaza Shop Support Fund, were altering the economic architecture, unlocking new avenues for township-based entrepreneurs and eroding the protective moats long enjoyed by big brands in high-footfall areas.
“New regulatory developments, such as the removal of lease exclusivity clauses and the R500m Spaza Shop Support Fund, are creating new avenues for both formal and informal retail expansion. In this evolving landscape, scale, operational efficiency, and a strong customer value proposition are critical to sustaining growth and relevance,” it said.
Pick n Pay’s comments come amid a widening corporate and government rethink about the informal economy’s role in SA’s future. Last year, Tiger Brands said it would rebrand 2,000 spaza shops, a move that signals a shift from seeing township retailers as fringe actors to treating them as vital nodes in the company’s top-line push.
More recently, outgoing Capitec CEO Gerrie Fourie sparked a national debate with an assertion that traditional unemployment figures understate the scale of economic activity in the township.
Fourie’s comments, carried in Business Day, have since launched the government into action even as Stats SA defended its methodology.
Several senior government officials, including Khumbudzo Ntshavheni, a minister in President Cyril Ramaphosa’s office, representatives from the Treasury and statistician-general Risenga Maluleke, have expressed interest in discussing ways to create an informal business register.
Stats SA recently reported that the informal sector has grown into a significant contributor to the economy, accounting for 19.5% of total employment — second only to the formal sector — by providing essential income and job opportunities, especially for those with limited education.
Pick n Pay CEO Sean Summers acknowledged the retail environment was becoming more pluralistic, casting the vast network of spaza shops, hawkers and market stalls as allies in consumer service.
“We all exist together in the broader market to help bring convenience and availability to consumers wherever they may be,” Summers said, responding to Business Day’s question about the structural threat posed by the informal economy.
In the annual report, Pick n Pay said informal traders are benefiting from proximity and low-cost operations while the formal sector is under pressure from declining consumer spending, particularly in the middle-income market, a key segment for the group’s core supermarket offering. “Cash-strapped consumers are increasingly turning to retailers that offer low prices, trusted quality and convenience. Globally, discount formats make up a far greater share of grocery retail than they do in SA, indicating long-term headroom,” it said.
This is happening at a time when traditional supermarket models are already under pressure. The retailer said traditional supermarket models are increasingly scrutinised on price and relevance.
Significant implications
While the formal retail sector faces margin pressure and lease restructuring, the informal economy continues to grow and evolve, according to data from Stats SA and Trade Intelligence.
For formal retailers such as Pick n Pay, the implications are significant. Not only are informal players gaining legal access to high-footfall retail zones, but they are also attracting price-conscious consumers in both urban and peri-urban areas, often with lower overheads and more flexible models.
The company said it is responding by restructuring its own store estate, including closing or converting underperforming stores, reworking lease agreements, and rolling out new formats that prioritise cost-efficiency and location relevance. It is also accelerating the expansion of its discount chain Boxer, now the group’s fastest-growing business unit.
With Kabelo Khumalo.
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