After years of belt-tightening in the face of economic strain, the McKinsey state of grocery retail 2024 SA report says consumers, both in high- and low-income groups, are beginning to show renewed interest in premium products.
According to the report, this trend indicates a potential turning point in consumer behaviour, where the grocery sector has long been pressured by low economic growth, unemployment and high interest rates.
“This shift is accompanied by a rising demand for convenience, with a notable increase in online shopping and food-on-the-go purchases. High-income consumers, in particular, are prioritising healthier and sustainable food options, reflecting a broader trend towards conscious consumption,” said Damian Hattingh, partner and leader of McKinsey’s Africa retail and consumer practice.
Online grocery sales have emerged as a key driver of growth in the retail industry. According to the report, this sector has had a 54% annual growth rate since 2019, reaching R23bn in 2023, and the trend is expected to continue on the upward trajectory.
Despite this, affordability remains an issue. According to the Pietermaritzburg economic justice and dignity household affordability index, the average cost of the household food basket surged 1.8% to R5,348.65 in October.
“Between May and August, we saw a slight decrease in the overall cost of the basket, but in September we again saw an upwards trajectory in the price of the basket, and this has continued in October,” the household affordability index said.
“This upward trend is taking place as we see petrol and diesel prices decline, stability of electricity supply, and interest rates and CPI headline inflation trending downwards. In such a context we would expect that food prices should have continued their lower trajectory and continued on a downward trend.”
To adapt to evolving consumer preferences, McKinsey’s report said retailers should prioritise building tailored product assortments, leveraging AI for operational efficiency and customer engagement, and exploring innovative growth opportunities such as retail media networks and business-to-business platforms.
“The SA grocery retail sector is heavily influenced by demographics. Retailers are responding by tailoring their assortments to meet the specific needs and tastes of different consumer segments across the country,” said Pauline Carrion, an associate partner in McKinsey’s Africa retail and consumer practice.
“By leveraging AI to enhance operational efficiency and customer experience and exploring new growth avenues like retail media networks and eB2B platforms, local retailers could be setting new standards in service excellence and market adaptation.”
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