SA will see a sharp increase in e-groceries over the next seven years as more and more consumers across multiple income brackets increase their demand for online grocery services.
That’s according to Fitch Solutions — a unit of Fitch Group, the global financial information services company — who expect urban, time-constrained, moneyed consumers to quickly accelerate their demand for e-grocery services.
“Furthermore, with many high-skilled workers returning to physical offices over 2023 and 2024, demand for convenience will accelerate and provide robust growth for e-grocery players,” the agency said.
Since the Covid-19 pandemic in 2020, e-grocery demand has grown significantly, and while the easing of social restrictions and return to physical work locations picked up over 2021 and 2022, data from UK-based Institute of Grocery Distribution, an organisation that provides insight across the food and consumer goods industry, shows that demand has remained robust.
Not only have recognised mass grocery retail players such as Checkers, Pick n Pay and Woolworths seen their revenue and number of users grow since 2020, mass grocery retail competitors all have their own respective apps and last-mile delivery services for grocery items.
But there are some notable challenges to the outlook, especially for 2023.
Over 2022, inflation, in particular that of food and nonalcoholic drinks items, rose significantly, leaving consumers’ budgets tight and with little room for spending on convenience.
Investec chief economist Annabel Bishop said at 7.4% - the latest November reading - inflation continues to be high and well above target measures of 3-6%. Bishop said interest rate hikes are likely to continue over the first quarter of this year, while risks to the inflation and interest rate outlooks persist , placing further pressure on the consumer.
Food prices are expected to remain relatively elevated and be affected by further slowing in global economic activity in the first half of 2023.
The latest inflation numbers show that food inflation climbed to 12.5% after starting off 2022 at 5.7%.
Consumers saw prices of daily essentials such as cooking oils, dairy, maize products, rice, meat and poultry reach decade highs, forcing many to trade down price points, switching to private-labels, or in some cases moving to stores with lower price points.
Fitch said for the e-grocery space, consumers having tight budgets leaves little room for spending on convenience, and they are expected to return to physical stores to look for discounts in the first half of 2023.
“While we forecast inflation to decelerate over the second half of 2023, we expect the bargain-hunter approach by many consumers to persist over 2023. For e-grocery players, this means offering consumer staples at the lowest possible price point, to make the cost of delivery still tally below the cost of travelling to a physical store,” Fitch said.
However, over the medium-term (2023-2027) and as inflationary pressures subside, Fitch expects demand for e-grocery services to rise.
The US-based agency said another key factor that will drive the e-grocery and wider e-commerce uptake in SA will be closely tied to smartphone and internet access.
“By 2025, our telecom team expects mobile phone subscriptions in SA to be exclusively made up of 4G and 5G subscriptions, pointing to robust smartphone acquisition over the short-term over 2022-2024 supporting increased spending and use of e-commerce channels.,” Fitch said.
“For new rapid e-grocery players such as Yassir — the Algerian on-demand food and grocery delivery platform that entered the SA market in December last year — Uber Eats Market, Zulzi and other new entrants, the growth in e-commerce usage will be a positive for their outlook. SA consumers will benefit from a wide access to low-cost items and a high level of convenience.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.