While South Africa's grocery sector has been under pressure due to persistent macro-economic headwinds, 2024 is a turning point, as the sector is being bolstered by online sales.
This is one of the key findings of the State of Grocery Retail 2024 report compiled by McKinsey Africa.
The research analyses the global retail market for grocery shopping, as well as its unique dynamics. The SA-focused research is based on a survey of 1 000 local retail executives and consumers.
It identifies several strategic priorities for South African retailers, including growing their online channel and discounter formats, the use of artificial intelligence (AI), and emerging frontiers, such as retail media.
According to the report, SA’s grocery sectorhas been under pressure due to low economic growth, high unemployment, risinginterest rates and volatile inflation.
These factors have historically constrained consumer spending, leading to a focus on basic necessities. However, 2024 shows signs of a turning point. South African consumers – traditionally among the most cost-conscious and least optimistic worldwide – are now displaying early signs of renewed optimism and shifts in spending habits.
Fewer consumers, across both high- and low-income groups, are prioritising saving money.
Instead, there is growing interest in premium products and rising demand for convenience, with more shoppers turning to online channels, it says.
Damian Hattingh, partner and leader of McKinsey’s Africa Retail and Consumer practice, says the surge in online grocery sales in SA, which has grown by 54% annually since 2019, is predicted to accelerate in future.
“It is a significant driver of growth in the overall grocery market. This trend is expected to continue, with 26% of consumers planning to increase their online grocery spending in 2024,” notes Hattingh.
“As consumer confidence slowly begins to return, we are witnessing early signs of a shift in consumer behaviour. High-income consumers, in particular, are prioritising healthier and sustainable food options, reflecting a broader trend towards conscious consumption.”
While the economics of online sales are still not as attractive as offline sales, physical retailers are using their online channels to win over new customers from their competitors, especially in the lucrative higher end of the market, making the economic equation for retailers more attractive, says McKinsey.
Online retail in SA witnessed remarkable growth, exceeding 6% of total retail sales and reaching R71 billion turnover in 2023, according to the Online Retail in South Africa 2023 study, conducted by World Wide Worx.
The report notes physical retail has been stagnant for many years in SA, and is now completely flat, as online retail continues to escalate.
According to McKinsey, the race to leverage generative AI has started, but traditional AI still accounts for most of the value in grocery retail in all regions.
Around one to two percentage points of potential gain in EBIT margins could be achieved by leveraging AI technologies across the retailers’ omni-channels, it states.
“The South African 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 SA,” comments 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.”
Share