Welcome to the free version of our newsletter that analyses themes emerging from our live Market Reports. The client version of this Shop Talk includes:

• Access to the Market Reports.
• Analysis of general spending trends across the major retail categories during June 2024.
• Real-time spending data for Clicks’ and Dis-Chem’s online channels, showing potential for growth.
  

As a taste of what to expect, here’s a look at how spending trends at South Africa’s two biggest pharmacy chains.

‍

The retail pharmacy market is more concentrated than any other category we track. Just two companies – Clicks and Dis-Chem – account for the majority of 22seven user spending in this category. It’s also worth remembering that Pharmacy is different to other spending categories because the customer is not always the one paying. Medical aids and insurers often fund a customer’s medicine purchases from a pharmacy. The retailer reports this transaction as a sale but the transaction doesn’t appear on a user’s bank statement.

Disclaimer done, it’s still interesting to segment the category into Clicks, Dis-Chem and ‘Independent Pharmacies’. The ‘Independent’ grouping includes chains like Pharmacy @ Spar, Shoprite’s Medirite, Dis-Chem-tied The Local Choice, Alphapharm and a sizable number of smaller pharmacies.

Interestingly, growth in the Independent sub-category didn’t follow the same upward  trend as the rest of the category in June. This could be due to the widening gap in the sector between the two dominant chains and the rest. Dis-Chem and Clicks generally stock a wider range of non-dispensary products, and that selection is growing. Note, too, that Dis-Chem and Independent Pharmacies experienced more pronounced fluctuations in spending growth, with significant spikes and declines. In contrast, Clicks has shown a more stable trend with less variation.

‍

SPENDING GROWTH: RETAIL PHARMACY

‍

Battle of the giants

Cash-flush Clicks, which has earmarked nearly R1bn in capital investment for the 2024 financial year, plans to open as many as 55 new outlets, increasing its store base to more than 1,200 in the long term. The group has also invested in a dedicated e-commerce warehouse that can deliver more than 1m parcels per annum to consumers.

This dovetails with the new Clicks app: shoppers can access most products they would find in-store, track their orders and check their ClubCard points. Other features include the ability to submit scripts, make clinic bookings or chat to a pharmacist. With a 4.6 star rating on the Apple App Store, it seems that consumers are enjoying the user experience.

Dis-Chem has also been busy. With a new CEO and an equally ambitious expansion plan, the group aims to open about 140 stores in the next three years. (Clicks currently still has a significantly larger footprint with ~900 stores nationally, compared to Dis-Chem’s ~270.)

Against that backdrop, let’s look at user spending across the two chains. Our 22seven data favours Dis-Chem, whose market share is 56% compared to 44% for Clicks across the demographic spectrum. Probably due to its bigger store footprint, Clicks has a higher number of customers transacting monthly, but these customers transact less frequently than Dis-Chem customers, and they spend less each time. Dis-chem’s smaller overall number of users spend significantly more per transaction, which accounts for the group’s greater market share.

Note that the 22seven user base is skewed towards middle- and higher-income earners, and Dis-Chem’s market share increases as income increases. (For users earning R60k+ pm, Dis-Chem’s market is ~60%; in the R15–25k pm demographic, market share is closer to 50%.) The same pattern is observed when we segment for age: older users tend to prefer Dis-Chem, whereas Clicks appeals to a younger user base.

The chart below takes an average across the demographic spectrum and compares the two retailers on user base size, total monthly spend, market share and average transaction value. Importantly, even though the average transaction value at both retailers increases slightly every month, there’s no evidence yet to prove the success of either retailer’s expansion strategy.

Online is where it’s at

Over the last few months, we’ve done extensive reporting on how online-only retailers like Shein and Temu have disrupted the local market, and how local businesses like Checkers Sixty60 have attempted to level the playing fields. The Covid-19 pandemic fast-tracked online growth. While most local retailers have some sort of online strategy, some have been far more successful than others.

In the pharmacy space, Clicks seems to be taking the lead in this regard. Although online shopping at both Clicks and Dis-Chem is still a very small component of total spend among our users, the trend is almost the opposite of what we see in-store: Clicks is ahead of Dis-Chem on almost every metric, by a long way…

‍

The full report is available to clients. Contact us to learn how you can access research via your broker or subscribe directly. To see more of what we do, click the links below.

In brief
‍

• In May, international giant Amazon quietly stepped into South Africa's e-commerce space. Despite its launch drawing initial skepticism, early data indicates a promising start – and a sizeable increase in market share in the General Merchandise category.
  

• Checkers Sixty60 continues to drive innovation with it’s BETA app, adding Checkers Hyper products to its 60-minute delivery service. Increased sales within select Cape Town suburbs reveal the potential value of Q-commerce (quick commerce) to a greater market segment.
  ‍
  

If you’ve read our recent reports, you’ll be familiar with the extensive impact that Chinese e-commerce sites, Shein and Temu, have had on South Africa’s online retail landscape. And let's not forget about the launch of Amazon South Africa...

Even though there are ongoing legal battles to regulate import taxes and protect local suppliers, local retailers have still been forced to shift their approaches to reassert dominance and differentiate themselves from their international rivals.

Let’s take a look at what’s been happening…

‍

The sleeping giant wakes

Amazon South Africa officially launched on 6 May 2024, but the response was underwhelming. Some sources in the media criticised the brand for forgoing its unique products, including the beloved Kindle e-reader, Fire TV, Ring video doorbell and Amazon’s famous Alexa. In addition, buyers were faced with 'out of stock' notifications during checkout.

Despite this, among the South African users we track, there were more purchases at the local Amazon in May than on Amazon international for the the whole year.

Amazon’s combined May figures not only record the highest number of users across the entire 2024 period, but reveal that the brand’s market share in the General Merchandise category has doubled.

‍

USER NUMBERS: AMAZON.COM vs AMAZON.CO.ZA

Interestingly, despite Amazon South African having a greater number of users, Amazon international users transacted more frequently. Average basket value on the local site matched competitors like Takealot and Makro.

Reveal’s data suggests that local retailers should remain vigilant in upcoming months. The next few months will tell if Amazon South Africa's 'quiet' launch was in fact the formidable foe just biding its time...

‍

Checkers Sixty60: Hyper-fast in Cape Town

Checkers has always been at the forefront of all things e-commerce in South Africa, and this latest development is no exception: They're challenging Takealot’s new offerings in the General Merchandise space with an all-new app of their own. Users in select Cape Town suburbs can now order general merchandise from Checkers Hyper and get it delivered within 60 minutes via the Checkers Sixty60 app.

We analysed all users who regularly shop on  Sixty60, and we identified the customers transacting in the suburbs where the new Beta app is available – to account for other outside variables and measure the potential effect of selling Hyper products on the Sixty60 app.

The number of customers using the  Sixty60 app in these suburbs increased in May, despite a noticable decline in the overall Sixty60 user base since March.

PERCENTAGE CHANGE:  NUMBER OF SIXTY60 USERS

When it comes to average transaction value and number of transactions per user, both metrics showed minor changes from April to May. For the target  users on the Beta app, both metrics increased; for the users of the regular app, average transaction value decreased slightly while average number of transactions increased slightly.

The total spend for users in suburbs where the new app was rolled out reached its highest value for the year in May. Although the total spend for the entire base also increased in May,  growth on the regular app was less than half of that observed for the Beta app.

In summary, the early data suggests that customers using the beta version of Sixty60, with access to a far wider range of products, are likely to shop more frequently and spend slightly more each time, compared to the customers using the original app.

Time will reveal a more complete picture in the months ahead. Watch this space...

‍

PERCENTAGE CHANGE IN TOTAL SPEND: SIXTY60 USERS

‍

Takealot  jumps on the subscription bandwagon

In Mission Possible, we analysed the effectiveness of Checkers' new Sixty60 subscription service. Now Takealot has  thrown its hat into the ring with TakealotMORE – a similar subscription service where users can access  unlimited free deliveries from Takealot and parter delivery services like  Mr D and Pick n Pay asap!

On 13 May, TakealotMORE launched with a free 7-day trial, followed by unlimited free next-day deliveries for just R39 a month or R99 for a premium subscription with no minimum spend.  

We segmented users who subscribed to TakealotMORE  in May and compared their spending at Takealot, Mr D and Pick n Pay asap! before and after signing up for the subscription service.

The results are fascinating...

‍

The full report is available to clients. Contact us to learn how you can access research via your broker or subscribe directly.

‍

In brief
‍

• Xtra Savings Plus is a subscription service offered by Checkers, which gives shoppers unlimited Sixty60 deliveries and a one-off 10% discount on an in-store purchase per month. The introductory price is R99pm, discounted from R149pm.
  

• Our data shows that XSP has been successful so far, at least from a customer perspective. Retention is high and the service is popular among older, high-income shoppers.
  

• We analysed a cohort of XSP subscribers to see how their grocery spending in March and April 2024 compares to grocery spending during the same period in 2023. Average spend at Checkers among this cohort increased by 28% to R5,617pm, and the average number of Sixty60 orders increased by 44%.

• When it comes to profitability, however, the numbers for XSP are less convincing. We estimate gross profit may increase by 9% if XSP subscribers do not take up the in-store discount. If they do, gross profit may decline by 5%. Ultimately, we think that XSP is a ‘prime’ example of local retailers adapting to growing international competition.

‍

Towards the end of last year, Checkers launched their Xtra Savings Plus subscription service. You probably remember the ad: a faux Tom Cruise in all his greatest moments (although sadly not as Stacee Jaxx), spending and swiping and saving the world.

For an introductory offer of R99pm, discounted from R149pm, subscribers could access unlimited Sixty60 deliveries, plus an additional 10% saving on one in-store purchase per month.

‘Xtra Savings Plus’ is quite long and complicated, so we’ve abbreviated it to XSP. In this research note, we’re going to evaluate the profitability of XSP as a subscription service. Using a new retention model, we’ll see how it stacks up against other leading consumer subscription services like Netflix and Spotify. Drawing on our unique real-time spending data, we’ll also highlight which shoppers are using XSP, and how XSP has affected their purchasing behaviour.

In the end, we’ll hopefully have enough inputs to answer the question that all analysts and competitors should be asking: Is the Xtra Savings Plus subscription model profitable for Checkers?  

‍‍‍

Customer retention

In case you’re wondering why we’re comparing XSP to Netflix and Spotify (and Showmax, for local flavour), it has to do with the word ‘subscription’. The subscription business model has become synonymous with media streaming services, even as it has spread to other services. Comparing on this basis is not perfect, but it does provide a benchmark to evaluate how successful XSP has been so far.

To be clear, XSP is not yet in the same league as Netflix and Spotify. The number of South Africans subscribing to the major global media services is orders of magnitude larger. Netflix is the big daddy, with c7.6 subscribers for every one XSP subscriber in the sample.

But what about Sixty60 users and Checkers in-store shoppers? Including these metrics gives more context to the research and helps to scale the samples.

So, here’s what we’re looking at: There are about the same number of Spotify subscribers in the sample as there are Sixty60 shoppers, and 1.5 (standalone) Showmax subscribers for every XSP subscriber. The number of Checkers in-store shoppers is many times larger than any subscription service.

‍

RELATIVE SIZE: NUMBER OF SUBSCRIBERS/SHOPPERS TO EVERY XSP SUBSCRIBER

‍

‍

We’re specifically interested in how these services retain their customers, month to month. By our definition, retention means the proportion of last month’s customers who subscribed again this month.  

From the chart on the next page, it’s clear that customers are loathe to give up their Netflix and Spotify subscriptions. Nearly 95 out of every 100 customers prioritise paying their subscriptions to these services each month. (No wonder credit bureaus around the world are searching for alternative measures, like subscription payment profiles, to offer differentiated credit scores and increase access to credit.)

XSP’s retention level is just below this high-water mark. Currently, nine out of ten XSP subscribers maintain their subscription on a month-to-month basis. Showmax’s retention, by comparison, is a little lower at ~83%.

In general, we note that retention seems to fluctuate fairly predictably. The rate weakens in the early part of the year, maybe as a result of consumers struggling to maintain their festive season splurging.

‍

CUSTOMER RETENTION RATE: JAN 2022 – APRIL 2024

‍

Who subscribes to Xtra Savings Plus?

In previous reports, we have shown that on-demand grocery delivery is most popular among mid- to high-income, predominately middle-aged users – the time-starved working families or professionals who can afford not to go to the supermarket.

Our most recent spending data shows that XSP exaggerates this trend and appeals to the Sixty60 super fans. In other words, a Sixty60 shopper is likely to be relatively wealthy and they’re likely to fall into the 35–45 age bracket. XSP subscribers are even more likely to earn in a higher bracket and more likely to fall into the 35–45 age bracket.

‍

SIXTY60 USERS AND XSP SUBSCRIBERS, BY INCOME AND AGE

‍

Convenience, delivered

Now that we know who subscribes to XSP, let’s see how unlimited delivery has affected their purchasing behaviour and whether a subscription model can be a profitable business for Checkers.

The best way to measure the effect of XSP of consumer behaviour is to take today’s XSP subscribers, review their current grocery spend, then look back in time and compare how they were spending this time last year.

Fortunately, that’s exactly what Reveal can do.

From the sample of XSP subscribers, we identified a sub-sample of 1,770 XSP subscribers with uninterrupted transaction data that allows us to compare March and April spending between 2023 and 2024.

We looked at all spending at the four major grocery retailers over this period. The average total grocery spend by today’s XSP subscribers has increased by 10% to R11,250 pm.

These shoppers were already regular Checkers shoppers. Since subscribing to XSP, their spending at the retailer has increased even more. In 2024, among this user sample, Checkers accounted for 50% of the average total monthly spend on groceries – an increase of 7 percentage points (pp) over 2023. Average spend at Checkers by XSP subscribers increased by 28% to R5,617pm and the number of Sixty60 orders increase 44%.

Interestingly, however, the average Sixty60 order value among this cohort declined 10% to R432 (more on that later). In-store visits and average maximum in-store purchase values also decreased.

‍

‍

Can Xtra Savings Plus be profitable?

Checkers’ spending share gains have been won in equal amounts from all of the other major grocery retailers. In this particular consumer segment, Woolworths has the second largest share (-2pp on 2023 share), followed by Pick n Pay (-3pp) and Spar (-2pp).

Of the R11,250 that these XSP subscribers spend on groceries each month, they spend R5,617 (50%) at Checkers. Sixty60 accounts for 37% of that spend – an increase of 10pp over 2023.

From this data, it’s clear that Sixty60 accounts for all the increases in total spending at Checkers for this cohort. (In-store sales actually declined, as did in-store shopping trips.) With the licence to summon unlimited baskets to their door, the average number of Sixty60 orders has increased by 44% – from 7 orders to 10 orders per customer per month – even as the average order value has decreased by R46 (10%) to R432. (Much of that decline can be explained by no longer having to pay the R35 delivery fee…)

Finally, the maximum average transaction value (ATV) per customer is ~R1,260. Maximum ATV is relevant because we think it’s reasonable to expect that XSP subscribers use their monthly 10% in-store discount for their highest-value purchase.

From the customer’s perspective, an XSP subscription appears to be a significant benefit. Instead of spending R243 on delivery fees (7 * R35), they spend just R99 and order more often. Total spending at grocers has increased by 10%, roughly in line with inflation over the period, so the monthly saving of R144 equates to c1.3% of monthly grocery spend.

Checkers has clearly won share of spend that will support revenue growth, but what do these findings imply for profitability?

The table on the following page estimates the profit impact of XSP from Checkers’ perspective.

In 2023, the cohort under review were spending an average of R4,402pm at Checkers. During the same period in 2024, they spent R5,617 – an increase of 28%. After VAT, delivery and subscription fees, these customers are spending a total of 33% more on groceries in 2024.

The main assumption is what the average gross profit margin might be for a Sixty60 order. If the Shoprite Group gross margin was 24.1% in FY23, we’d assume the contribution from a Sixty60 order should be higher – more branded items and more fresh produce in the basket. With that in mind, we’re assuming a 25% gross margin on a Sixty60 order.

At that margin, Checkers’ average gross profit per customer in 2024 is 33% (or R295) higher than in 2023 (assuming Checkers foots the bill for the same cost per delivery – R30.50 after VAT – net of the subscription received). If we were to stop there, Checkers’ estimated gross profit per customer would be up 9%, or R77.

But XSP subscribers also get the benefit of an extra 10% off an in-store purchase. Not all subscribers will redeem this benefit, however. The average XSP subscriber is shopping less in-store and there are additional actions that he or she must undertake to redeem the discount. (Such actions typically cause conversion rates to fall.) The worst case for Checkers is if every subscriber redeems the discount on their highest-value purchase each month (~R1,261). If that were the case, then our estimate implies gross profit per XSP subscriber declines by 5%. By the same logic, Checkers will break even if less than 61% of XSP subscribers do not redeem their in-store discount.

‍

What does the future hold?

Our data suggests that XSP has been a hit for customers: Retention is high and stable, and the service offers meaningful customer value.

But the evidence of profitability for Shoprite shareholders is potentially less definitive. XSP is almost certainly driving stronger market share and revenue gains among higher-earning customers. This is a known strategic objective for the company and it might translate into gross profit growth between -5% and +9%. Inevitably, investors will complain that XSP is diluting margins while management will argue that they’re banking rands not percents.

There are other factors to consider:

• Sixty60’s effect on trading profit is still uncertain. For example, ‘dark stores’ or mini distribution centres are popping up – these service Sixty60 orders only. There’s one such ‘dark store’ close to Reveal’s offices in Cape Town. It’s like a beehive, with bikes coming and going at high frequency. The seemingly higher trading density and obviously lower occupancy cost might well translate into better trading margins than the average Checkers store.
  

• Strategically, an XSP subscriber is now even more immersed in the Checkers/Shoprite ecosystem. They’re tied to the points balance on their Xtra Savings card and they’re hooked on the convenience of Sixty60 delivery. We argued in Grocery Games that Sixty60 would inevitably expand into a larger general merchandise offering – something that is now happening. As Amazon launches in South Africa, perhaps an XSP subscription is the best defence against this giant retailer hitting its ‘prime’ on our shores…
  

Welcome to the free version of our newsletter that analyses themes emerging from our live Market Reports. The client version of this Shop Talk includes:

• Access to the Market Reports.
• Detailed analysis of general spending trends across the major retail categories during April 2024.
• An analysis of changes in spending share among listed retailers in the Apparel category, across various income brackets.
  

As a taste of what to expect, here’s a look at how the major apparel retailers are retaining customers, and how average transaction values have shifted since March 2023.

Get the full report

With limited growth in consumer income, and surging international competition from the likes of Shein and Temu, the priority for retailers is to keep the customers they already have. Customer retention is hard to measure, but we think it can offer an objective metric.

The chart below shows average three-month retention for the major apparel retailers. We define three-month retention as the proportion of customers who shopped at a particular retailer in the past three months, compared to the preceding three months.

Even among a digitally savvy, relatively-affluent sample of consumers, PEP has the highest retention rate among the top apparel retailers: 54% of customers who shopped between November and January shopped again at PEP between February and April. CottonOn has the lowest retention.

In general, the data supports our intuition that the more fashion-orientated retailers (like H&M and Shein) have a lower retention rate than retailers that offer everyday clothing (like PnP Clothing and Ackermans), or retailers with a very broad offering (like PEP and TFG).

Like most retail metrics, retention tends to be seasonal. Therefore, we have also shown annual growth in retention as an indicator of the trend. On this basis, retention is falling at most retailers. Superbalist is experiencing the weakest retention while Shein is the overwhelming standout over the year.  

‍

AVG 3-MONTH CUSTOMER RETENTION VS ANNUAL GROWTH IN RETENTION

‍

Price relief

When it comes to average transaction value (ATV) at listed retailers, this metric has also slowed or declined in most cases in recent months. This slowdown is shown in the charts below, which plot the average change in ATV for two income brackets: R15–20k pm and R40–60k pm. The charts are similar and show how consistent this trend is across the demographic spectrum.

Relative to its peers, TFG again follows a more resilient path.

In general, declining ATV might reflect moderating inflation and/or greater discounting to clear stock.

‍

CHANGES IN ATV AT LISTED APPAREL RETAILERS, BY INCOME BRACKET

‍

For more about what we offer, browse the rest of the site or get in touch.

In brief
‍

• Temu is a global online megastore operated by the Chinese e-commerce company PDD Holdings. You can get nearly anything and everything, from a hiking tent to bike parts to an outfit for your dog. Items are shipped directly from China.
  

• This is a review of the shoppers who purchased from Temu during March 2024. The idea is to describe who these customers are, and where they’re not shopping now that they’re shopping at Temu. Since we only have one month of data, it must be stressed that these are initial insights.
  

• From a standing start in January 2024, our analysis shows that spending at Temu has accelerated exponentially. In March, more users shopped at Temu than at Shein, the Chinese apparel merchant.
  

• The data shows that these ‘early adopters’ are older and higher-earning than typical online shoppers in South Africa

• Who is losing out to Temu’s wins? Takealot’s spending share has decreased significantly and Superbalist’s share is half of what it was a year ago.

‍

It has been a tumultuous few years for South African retailers. Brands in almost all sectors are under attack from Chinese sites that advertise aggressively on social media, undercut on pricing and ship directly. We have already shown how Shein, the Chinese fashion site, has claimed a significant share of the local apparel market.

Now we have Temu – a more general marketplace site in the mould of Amazon or Takealot. Temu is inescapable. Of late, you can hardly scroll through Facebook or Instagram without being bombarded by adverts. In the US, they bought a prime-time slot during the Superbowl, which led to the Temu app rising to second most downloaded on Apple devices.

In the most recent edition of Shop Talk, we highlighted the explosive growth of Temu in South Africa. During March 2024, more users bought from Temu than they did from Shein.

The purpose of this note is to understand more about the Temu shopper in this country. Who are they? And which online competitors are these shoppers shunning when they elect to buy from China?

A caveat before we get going: This is only one month of data. Although our sample is healthy (>2,000 users), the short time frame limits the extent of the analysis.

Still, it’s abundantly clear that Temu, and other sites like it, are here is here to stay. Consumers are not put off by the logistical challenges of using such sites, and their numbers are growing.
‍

The big spike in March

The chart below shows the speed at which Temu customer numbers in South Africa have grown. During March, more users bought from Temu than from Shein.

At the time of writing, there was no spending threshold for free delivery at Temu, which is unusual for online retailers. Most local companies, including Takealot, have a threshold of around R500. Shein’s  is a bit higher at R600. Normally, the threshold informs the average transaction value on a particular site as customers try to qualify for free delivery.

Temu’s average transaction value is around R500, which is high considering that customers need not spend that much for free delivery.
‍

TEMU: CUSTOMER GROWTH AND AVERAGE TRANSACTION VALUE

Who are Temu’s customers?

In order to analyse spending at Temu, we first looked at all the users in our sample who shopped online, at a long list of online retailers including Takealot, Makro, Shein, Bash, Dis-Chem, Temu (obviously) and many others. Then we compared the Temu shopper and the average online shopper to all users with purchases in the Home and Apparel categories. We segmented the analysis by income bracket and age. Since Shein operates in a similar mode to Temu, we included it as a barometer.

In general, our data shows that wealthier customers tend to shop online more frequently than customers with lower incomes. This seems logical. When it comes to Temu, the ‘early adopters’ are even more likely to be on the wealthier end of the income spectrum. Since Temu is new in South Africa, users might be experimenting with a few inexpensive purchases. As higher earners, they’re prepared to take the risk of not receiving the product and/or receiving something of an inferior standard.

Interestingly, Shein shoppers are more likely be middle-income users. In that sense, the Shein shopper demographic more closely resembles that of the ‘average’ online shopper.

When it comes to age, the average online shopper closely matches the demographic of the average general consumer. In other words, online shoppers are less likely to be very old or very young – they’re mostly in the same demographic as the people who use brick-and-mortar stores.

The early Temu shoppers are different, however, with a marked trend towards the older side of the spectrum. This differs from the average Shein shopper, too, who is more likely to be in the 26–35 age category.

In summary: Online shoppers in general are typically from higher-income bands across the age spectrum. Early adopters of Temu exaggerate his trend: they’re more likely to be older and earning in the highest bracket. In contrast, Shein attracts a younger, middle-income shopper.

‍

LIKELIHOOD OF USERS SHOPPING AT ONLINE RETAILERS RELATIVE TO USERS SHOPPING INSTORE, SEGMENTED BY INCOME AND AGE

‍

What is Temu’s market share?

Now that we have an idea of who is shopping at Temu, how has their spending impacted the general merchandise market in South Africa?

To answer this question, we identified a sample of 1,990 Temu customers with uninterrupted transaction data from January 2024. Doing so allowed us to draw a direct comparison with spending in the first three months of 2023.

For the users in this sample, in March 2024, we estimate that their Temu spend accounted for c30% of the total amount they spent on Home and Apparel that month. In Reveal parlance, the ‘Home’ category encapsulates General Merchandise (e.g. Takealot, Makro), Furniture (e.g. MRP Home, @Home) and DIY & Garden (e.g. Builders Warehouse, Mica).

Since Temu attracted 0% of Home spend a year ago, there have been significant shifts in how spending is allocated. Indeed, our analysis shows that the impact of Temu’s rise has been felt by most retailers in the category. In general, online-only retailers in the GM and Apparel categories, and DIY retailers, have been hardest hit.  

The five retailers that have experienced the largest shifts in spending are shown in the chart on the following page. Takealot has lost the greatest spending share by far: four times the next largest.

It should be noted that Takealot attracts a significant chunk of this cohort’s spending, so it had more to lose. To accommodate this, and to give a better indication of Temu’s impact, we have also shown the percentage change in spending share between March 2023 and March 2024.

Takealot’s spending share has fallen nearly 12% – a decline of ~35% compared to a year earlier. This decline is in line with the other five retailers who all lost share to Temu
(–20–56% ). Superbalist has cause to worry: its spending share is half of what it was a year ago.

‍

SHIFT IN SPENDING FOR TEMU SHOPPERS: DIFFERENCE AND % CHANGE IN SPENDING SHARE
(MARCH 2023–MARCH 2024)

‍

What have we learnt?

• The number of Temu shoppers is rising exponentially.
  

• Early data shows that Temu shoppers are older and earn more than typical online shoppers.
  

• In Home and Apparel during March, Temu shoppers allocated c30% of their total spending in these categories to the Chinese retailer.
  

• Of all the major retailers we track, Takealot suffered the highest spending share decrease in March (–12%).
  

• Superbalist’s spending share is half of what it was in March 2023.
  ‍

Welcome to our newsletter that provides commentary on themes emerging from our live Market Reports. Clients receive:

• Access to the Market Reports.
• An overview of general spending trends across the major retail categories.
• An analysis of changes in grocery spending over the past 12 months.
• A comparison of Reveal spending growth vs share price movement in anticipation of 1Q24 results.
  

As a taste of what to expect, here’s a snippet about the surge in spending at Temu – the latest Chinese online megastore.

‍

Get the full report

‍

Have you also been bombarded by Temu ads? Holographic 3D shirts, pyjama jumpsuits, novelty fish slippers, a fur-drying suit for your dog… The social media onslaught by the Chinese online megastore has been inescapable in recent months. It’s obviously working because – from a standing start at the beginning of 2024 – more users bought from Temu than from Shein in March.

We’ve done two detailed reports about Shein’s explosive rise in South Africa and it’s no secret that the Chinese fashion retailer is now a dominant market player. (Read Shein of the times and The road to Shein.) What does the rise of Temu mean for other general retailers like Takealot and the soon-to-launch Amazon South Africa?

We’re busy working on a detailed analysis of Temu’s growth, asking questions like which demographic is responsible for the growth in spending? And which services have those same shoppers stopped using? ‍

Contact us if you’d like to receive the final report.

‍

GROWTH IN CUSTOMER NUMBERS: TEMU VS SHEIN

In brief
‍

• The Chinese online retailer Shein is a major player in the South African apparel market, but many listed retail executives prefer to downplay the threat to their businesses.
  

• For years, our core 22seven data has shown Shein’s rise. Acknowledging that this data might not be representative of the greater population, we analysed a brand-new dataset: de-identified transactions from 20,922 new customers.
  

• While there are some differences in the data, there is one striking similarity: Shein’s spending share is nearly identical. This proves that the retailer’s meteoric rise is no hoax.
  

• Due to the low prices of garments and a relatively high free-delivery threshold, a new type of Shein shopper has emerged who aggregates purchases on behalf of individuals. But the data shows that these ‘super users’ can’t explain all of Shein’s growth: the majority of spend comes from individuals.

‍

Things have been happening at Shein. The Chinese retailer, which is already one of the most profitable fashion companies in the world, recently moved its headquarters to Singapore, doubled its global profits to more than US$2bn, and is awaiting a stock market listing in London or New York.

We have been tracking local spending at Shein for some time. In Rise and Shein, we showed that average spending is 2–4x higher than at competitor retailers, and Shein customers also tend to be younger than the average shopper, which bodes well for future growth. The Road to Shein tracked the spending journey of a new Shein customer and highlighted the dilemma facing traditional store-based retailers: if they offer their customers an online experience, they might inadvertently train them to shop elsewhere.  

Yet despite exponential growth in this country, many market players continue to downplay the threat posed by Shein. They point to anecdotal evidence of small numbers of customers in very specific demographic segments skewing the numbers. The problem is that most investors can’t challenge this narrative because they don’t have the data to support their views.

This is where Reveal steps in. By equipping investors with a large sample of actual spending data from real consumers, we can interrogate underlying market trends that are likely to influence the future prospects of listed companies. Our goal is to challenge the selective disclosure provided by company management. Company reports usually offer rose-tinted explanations of how consumers engage with the company’s brands, and they shield outsiders – investors – from emerging threats to the business. We want to equip those investors with empirical information to allow them to make better-informed investment decisions.

Let’s get to it.

‍

A brand-new dataset
‍

In the past, most of our spending data has come from the budgeting app 22seven. The data provides a ‘live’ view of users’ debit and credit-card spending across all South African banks and financial service providers. A perception, however, has been that it may skew towards consumers who are more digital-savvy – that it’s not representative of the greater population, in other words.

To address this concern, we recently acquired anonymous and de-identified transaction data for 20,922 consumers. Most of these are Capitec bank customers. The median income across the sample is R16,369 pm, with an average age of 31. We showcased the value of this complementary alternative dataset in last month’s report about Pick n Pay’s unbundling of Boxer.

Now we’re turning our attention to Shein. By analysing the apparel market using the two datasets, we’ll highlight differences and consistencies to prove that Shein’s growth in this country should not be ignored.  

To simplify things, we’re going to call the 22seven data the Core Data, and the Capitec data the New Data.

Our analysis will look at customer spending at all apparel retailers during the four months of overlap between the two datasets: October 2023 to January 2024.

‍

Sample size by income and age
‍

• Both data sets are large: Core Data tracks apparel spending by 53,379 users; New Data tracks apparel spending from 20,922 consumers. In total, there are more than 480,000 transactions at apparel retailers over 4 months ending January 2024.
  

• Sample sizes within income brackets are also large. Core Data is overweighted in high-income brackets, yet the number of consumers in each income bracket is significant in both datasets.
  

• The majority of consumers are young. Sample sizes for consumers younger than 55 are substantial in both datasets.

‍

SAMPLE SIZE BY INCOME

‍

SAMPLE SIZE BY AGE

‍

Market share comparison

How does spending share differ across the datasets?

First, a disclaimer: no dataset is perfect. Interrogating the two sets is not meant to show that one is better or worse than the other. Both are large samples and have different strengths; knowing the differences will enrich the interpretation of the results.

For simplicity’s sake, we’re going to highlight two income groups for this comparison: R7.5–10k pm and R30–40k pm. The charts below show market share for the two groups, followed by the retailers that show the most variance in each group.

Observations:

• Spending share for listed retailers is much higher in New Data than in Core Data. In most cases, it is closer to industry estimates of market share.
  

• In Core Data, ‘Other merchants’ (a grouping of smaller outlets) accounts for a greater share of overall spending.
  

• Unpacking the variance: Core Data reflects lower spending at major listed retailers and a greater share at mall-based retailers (e.g. Cotton-On, H&M) and online retailers (e.g. Superbalist). Controlling for income, we can infer that Core Data represents a more urban consumer: closer to malls and able to accept delivery.
  

• Although we only have four months of New Data, it’s clear that combining the two datasets provides a far richer view of spending and an opportunity for more detailed analysis of spending and growth. This is an exciting prospect for Reveal and its clients.

MARKET SHARE BY RETAILER

‍

DATASET VARIANCE BY RETAILER
Market Share: New Data less Core Data

‍

‍

So, where’s Shein at?

For all the subtle differences in the data, the most striking observation is the similarity in one key area: Shein’s spending share in both samples is nearly identical. Both datasets still rank spending at Shein in the top five among apparel retailers.

How can that be? Customers in New Data spend much more at Ackermans, Pep and Mr Price, yet a significant portion of their spending still goes to Shein. The prevalence of online spending in both samples is probably more similar than one might expect.

This insight alone adds significant credibility to our observation that Shein is changing the landscape in the apparel market. The impact has been noted in Core Data for years and is now validated by our New Data. It would be foolish to think otherwise.

And in case you need a reminder, Shein’s enormous spending share has grown from zero in only four years.

(Side note: Superbalist is the largest online retailer in Core Data, but it features less prominently in New Data, which reflects a market share structure that is more aligned to existing industry norms.)
‍

The rise of the ‘runner’

For such a serious market competitor, shopping at Shein is not as simple as one might expect. Since all items are manufactured in China and shipped from there, delivery times are slow and customs fees come into play. Similarly, returning items is a headache.

There’s also the issue of the free delivery threshold. For a company shipping from China, the R600 threshold is actually quite low, but some of the garments are so cheap that it’s difficult to reach that threshold. (Deliver costs R150 for orders less than R600. By comparison, Superbalist delivery is free for orders over R500 and R60 for orders under the threshold.)

Shein’s R600 minimum order has given rise to a new kind of online shopper – a reseller or ‘runner’ who leverages social networks, WhatsApp and increasingly affordable local courier services to order from Shein on behalf of others for a small surcharge. Here’s an example on Facebook Marketplace and Instagram.

Are these runners, with their increased shopping frequency and higher basket spend, contributing meaningfully to Shein’s market share?

Again, we looked at the numbers.

Our evidence shows that 6% of Shein customers purchased more than five times from the retailer in the four-month period under analysis. Yet despite their relatively small numbers, these outliers account for 26% of spending at Shein in the Core Data, and 16% in the New Data.

That sounds like a lot, but it only helps if we compare the figures to a competitor retailer. All retailers have ‘super users’, the question is whether Shein’s are markedly different.

Let’s look at Mr Price and Ackermans, both of which also had shoppers who purchased more than five times during the period. At Mr Price, those regular shoppers accounted for 21% of spending – a share almost equal to Shein’s regular shoppers. However, as the purchase frequency increases, the contribution of these super users decreases at Mr Price and Ackermans compared to Shein. At 10 purchases per month, Shein’s super users spend 3x more than Mr Price’s and 9x more than Ackermans’.

But these super users alone aren’t enough to explain Shein’s tremendous success. If we assume that Shein’s super users account for 9% of spending value, then Shein’s adjusted market share is ~6.3% instead of ~7%, which is still a major chunk. Therefore, even though there is evidence of so-called ‘runners’ boosting Shein’s spending share, it’s safe to say that they vast majority of spending still comes from individual shoppers.

PROPORTION OF TOTAL SPEND FROM CUSTOMERS WITH MORE THAN 5,10 OR 20 TRANSACTIONS DURING THE PERIOD

What have we learnt?
‍

• Despite a complicated delivery and returns process, consumers in South Africa, including those in lower-income bands, have not been deterred from shopping online at Shein. This mirrors a trend that has been observed worldwide.
  

• 'Runners’ or aggregators are more prevalent among Shein shoppers, but these high-spend users are not solely responsible for Shein’s outsized success over the past four years.
  

• Shein’s low-price fashion offering speaks to a gap in the market. South Africa is not protected by lower average incomes or logistical complexity.
  

• Given that the market shift has happened so rapidly, and data in the public domain is relatively opaque, it is understandable that apparel executives may downplay the threat. But the threat is valid, as we have now demonstrated across two large samples of real transactions from more than 70k actual consumers.

In brief
‍

• We analyse a new dataset of transactions from 27,182 Capitec customers.
• Boxer has a ~9% spending share among customers earning less than R15k pm.
• Boxer achieves the second-highest average transaction value among its competitors, but the lowest transaction frequency.
• Boxer’s discounter model seems to limit the proportion of grocery spending it can capture from individual shoppers.
• Store count will continue to be the dominant growth driver for Boxer.‍
• A stronger PnP may be a challenge to Boxer, and a separate Boxer introduces additional complexity for minority shareholders…

Pick n Pay is in serious trouble. In February, the group announced plans to raise R4bn from shareholders and to list a portion of its best-performing division: Boxer.

At Reveal, our goal is to use alternative data to give investment analysts a deeper understanding of their investment universe. This universe may soon include Boxer.

That said, our traditional spending data is generally representative of a higher-income customer and doesn’t offer the best view of a Boxer shopper, who is typically from a lower-income bracket.

So, we went shopping…

We acquired anonymous and de-identified transaction data for 27,182 Capitec customers from a service provider that facilitates KYC validation for lenders, mobile operators, municipalities, landlords and the like.

The median income across the sample was R16,369 pm, with an average age of 31. (We calculate income as the average cash inflow per month to the account.) As the charts below show, the sample is large and well balanced, with a good spread from very low to very high-income earners.
‍

SAMPLE SIZE BY INCOME BRACKET

SAMPLE SIZE BY AGE

When it comes to transactions, there are 19 million in the sample. From those, we extracted 575,600 purchases at Boxer, Shoprite, Checkers, Usave, PnP and Spar, over the four months ending January 2024.

Our research has historically focused on national retailers like those listed above, but the topic and the data allowed us to explore spending at less-formal grocery and food merchants, too. These include spazas, superettes, cash-and-carry stores and other grocery retailers.

The exact number and make-up of the merchants in this category are difficult factors to evaluate. Stores range from significant competitors like KitKat Cash & Carry, to hundreds of small spazas and supermarkets like Hamza Supermarket near Mbombela. (Click the link. It’s worth it.)

We refer to this collection of stores as ‘Less Formal’ because:

• It’s not a collection of purely informal traders, so it’s more accurate;
  

• There’s a range of reasonably large and very small stores;
  

• The category excludes cash transactions. By design, our data only reflects swipes or taps. Cash-only stores are generally informal in nature.

In total, purchases made by 12,600 customers at these less formal retailers added a further 82,247 transactions to the total transaction sample.

Across the whole sample, customers spent anything between R500 and R2,800 each month at the merchants considered in the analysis. Compared to the midpoint of their income bracket, this equates to 5–21% of their grocery wallet.

MONTHLY SPEND BY AGE AND INCOME BRACKET

SPEND AS A PROPORTION OF INCOME BRACKET MID-POINT

Observations:

• A 30-year-old customer earning ~R6,000 pm spends roughly 10% of her income (R691) at the retailers included in this analysis. By contrast, her contemporary earning ~R17,500 pm spends 7% of her income at these stores (R1,306). From the outside (I’m not that young!) these amounts appear low. But remember that this is not an exhaustive analysis of every possible channel of purchasing groceries – there will be some spending at merchants not included. And, importantly, our analysis excludes all cash purchases.
  

• Income is a more significant determinant of total spending than age. The average change in spending across successive age brackets is 6.5%, whereas the change across successive income brackets is 25%.
  

• This analysis does not include Woolworths because transaction data is unable to distinguish between clothing and food-related purchases. Woolworths’ clothing division is skewed towards a lower-income consumer but their food division is not. Since this report is focused on lower-income grocery spending, including spend at Woolworths would increase the food spend of higher-income consumers even further, creating an even more extreme contrast between lower and higher income brackets.
  ‍

Who shops at Boxer?

Boxer’s operating model differs from PnP’s. As a grocery discounter, it offers a comparatively narrow range of products – about 3,000 compared to 8,000+ in a typical PnP supermarket – with the commitment that these products will always carry the lowest price.

Even though Boxer has outperformed PnP’s core supermarket business for many years, it has only recently been separately reported on. Now that shareholders can disentangle Boxer from the core, we can see that the chain has reported sales of R34bn for the 12 months to Aug 2023. During the same period, the division posted growth of 17.1% – 11.9% of which came from expanding the store footprint.

The chart below shows the grocery spending share split for the 27k customers in the sample, by age and income bracket, at the six grocery chains in the analysis, as well as at the less formal stores.

Observations:

• Boxer’s share of total spending is greatest among low-income consumers (~10%) and it decreases consistently as income increases. Spending share is relatively stable (~9%) among customers earning less than R15k pm and declines more rapidly in higher-income brackets.
  ‍
  
• In general, spending share is relatively stable across age brackets.
  

A key factor that determines market share is average transaction value (ATV), or ‘basket value’. ATV is an important driver of profitability: given mostly comparable products, all else equal, the more a customer spends per visit, the greater the absolute profit.

The following charts compare average transactions. In the first, we hold age constant and compare across income brackets. In the second, we compare across the age spectrum.
‍

AVERAGE TRANSACTION VALUE BY INCOME BRACKET: CUSTOMERS AGED 25-35

AVERAGE TRANSACTION VALUE BY AGE BRACKET: CUSTOMERS EARNING R7.5–10K PM

Observations:

• ATV across the board increases as income increases. When it comes to age, ATVs peak among customers in the 35–45 bracket and then decline.
  
• In general, Shoprite has the highest ATV for each income and age bracket.
  
• Boxer’s ATV falls between Shoprite and Checkers for the age bracket shown, but in other age brackets, Boxer has the highest ATV.
  
• In most income brackets, PnP’s ATV is the second lowest, behind Usave. Its position improves among older customers, although there are more gaps in the data and fewer comparisons.
  
• Transactions at less formal stores have the lowest value on average.

Now let’s segment market share for a major cohort of Boxer shoppers aged 25–35 with incomes ranging from R7.5–R10k per month.

Controlling for age and income, this tells us:

• Shoprite attracted the most shoppers in this segment, followed by Spar (-5%) and PnP (-13%)
  
• At R248, Boxer’s ATV is just 7% lower than Shoprite’s, whereas other major retailers’ ATVs typically range between R155 (PnP; -42%) and R175 (Usave; -34%). This is a positive for Boxer, given that it’s a limited-range discounter and Shoprite is a full-range supermarket.
  
• Boxer has the lowest purchase frequency (1.7x month) – slightly lower than Usave. Customers shop most often at Spar (2.5x) and at less formal stores (2.4x).
  
• This method of decomposing market share is useful to highlight the different ways that customers engage with a retail chain. Look at Shoprite and Spar, for example. Both serve a similar number of customers (Spar 5% fewer); Shoprite attracts a much higher ATV (+60% vs Spar); while Spar customers shop 24% more often. The result is that Shoprite’s market share is 42% higher than Spar’s
• [42% = (1-0.05) *(1-0.4)*(1+.24) - 1].

To sum up this section, we’re positively surprised by Boxer’s average transaction value. As a limited-range discounter, customers spend almost as much at Boxer stores as they do in Shoprite supermarkets, which have a much wider product offering.

How does store count affect these numbers?

Boxer has a smaller store footprint than competitors like Shoprite, which is reflected in its lower market share. Surely it just needs to grow its store footprint then?

It’s not that simple. Based on the latest store lists from each retailer’s website, we estimate that Boxer has 281 superstores. (For the purposes of this analysis, we’ve ignored other store types in the count, like liquor, clothing, building etc.) Shoprite (577), PnP (617) and Spar (940) all have much larger store bases.

It’s also common to hear about provincial strongholds in the retail landscape. Boxer’s origins are in KZN and it has the most stores in that province, with comparatively few in Gauteng and the Western Cape.

Side note: we’re surprised that Spar doesn’t have a greater bias towards KZN. It’s often suggested that Spar has a strong reliance on this province, but its store distribution does not suggest any greater reliance than its major competitors.

How do we take the provincial differences in store bases into account? Do we even need to? Maybe, instead of focusing on all customers, let's narrow the focus to customers who shop at Boxer and at the other retailers, and compare the relative proportion of their grocery spending. Put differently, someone who shops at Boxer must be close to a Boxer store. Can we compare how these users shop at Boxer to how other customers shop at other stores?

To visualise this, let’s keep age constant and consider customers in the 25–35 bracket. The chart below compares the proportion of total spend at each retailer. We call this 'loyalty’ – a customer's share of total spend at a retailer.

For example, customers earning less than R5k per month, who shop at Shoprite, spend 45% of their total spend there. (The chart shows that Shoprite attracts the largest proportion of total spend across all income groups.)

LOYALTY BY RETAILER: CUSTOMERS AGED 25–35

At a glance, the chart appears similar to the market share charts above, but it’s actually showing something quite different: how much a customer spends at a retailer, relative to all the other retailers they also shop at.

Let’s go to Boxer again as an example. We’ve already shown that Boxer’s market share across all income demographics is ~9-10% (p 4) – this chart shows that Loyalty among its customers ranges from 25–35%.

(It’s worth considering the number of customers shopping at each retailer. Although this chart shows that Boxer’s loyalty is relatively stable across income brackets, earlier charts showed that its market share falls abruptly in brackets above R15k pm. The implication is that the number of customers who shop at Boxer in those brackets falls rapidly. The loyalty shown above simply demonstrates that the few wealthy customers who do spend at Boxer, spend c20% of their total grocery wallet in the store.)

It's interesting that for the two lowest income brackets, Boxer’s loyalty is most like Usave’s and the Less Formal retailers. Usave is also a low-cost, limited-range discounter; and although the ‘Less Formal’ category is comprised of many individual retailers, the spazas and superettes there are more likely to fall into same category of discount retailers than wider-range supermarkets.

It’s encouraging that the data shows such high consistency between these retailers at the lower-income end of the market. More importantly, it affirms the role that a limited-range discounter fulfils for its customers. By offering only a limited range, these retailers cannot fulfil as many needs as a wider-range supermarket. A limited range can boost profitability… By aggregating demand within a product category, operations can be simplified and volumes can be boosted, along with the retailer’s purchasing power with suppliers. But loyalty to a discounter will always be lower.  

With a loyalty at 40%+, Shoprite sets the standard in this space. But the data shows that even PnP has higher loyalty in lower-income categories than Boxer and Usave. (It is known that PnP has different ‘types’ of stores under the single brand, something it was trying to solve under Project Ekuseni.) This supports the notion that loyalty to a discounter can probably be capped at ~30%.

Finally, look how similar shopper loyalty is for PnP and Checkers in the income brackets between R15-60k pm, where its supermarket formats are most competitive.

To sum up this section, our analysis suggests that Boxer performs very well in the market that it operates in. But with a limited range of discounted products, the retailer is ‘boxed-in’ when it comes to how much spending it can attract from customers.

With that in mind, it’s unlikely that Boxer will be able to capture a significantly larger spending share from customers who are already shopping at its current stores.

So, will unbundling Boxer save PnP?

This analysis demonstrates Boxer’s pedigree as a retailer. Lower-income customers spend as much at Boxer as they do at Shoprite, which is the market leader in this category. However, as a limited-range discounter, Boxer is approaching natural thresholds as to what this retail format can extract from its customers. Store growth will therefore continue to be the most significant driver of growth.

Boxer has 70% as many stores as Usave, the most obvious discount competitor, and 50% as many as Shoprite. If store growth continues at ~10% pa, then space may be a reliable avenue of growth for Boxer for the next three to five years. A much larger store base will require a much more expansive supply chain.

Supply chain and minority investors ‍

The analysis has yet again shown how formidable the Shoprite Group is: three distinct brands with targeted consumer segments and differentiated retail models, each leveraging a single, integrated supply chain. The scale of this supply chain drives efficiencies that are reinvested elsewhere to continuously improve those efficiencies.

On the other hand, we understand that PnP and Boxer operate relatively separately, with different distribution infrastructure, logistics, merchandising and other functions. The allure of Project Ekuseni was that it attempted to replicate Shoprite’s strategy of three different consumer propositions and the possibility of the supporting supply chains to integrate, which could have led to a more efficient, profitable business.

PIK (to distinguish the group from PnP supermarkets) now plans to list a minority shareholding in Boxer to raise capital. We believe this would introduce complexities for minority Boxer shareholders when it comes to the dark art of allocating returns associated with a retailer’s supply chain. For example, how will a minority shareholder in Boxer know whether rebates by suppliers of products sold by Boxer are fully allocated to Boxer, as opposed to cross-subsiding PnP purchases from the same supplier? ‍

Is growth zero-sum for PIK?‍

We’ve written extensively about the market share shift from PnP to Checkers among higher-income consumers. But PnP’s challenges are not limited to this segment alone. This analysis is a reminder that PnP’s weakness is a boon to other retailers, including Boxer, which has likely been (and continues to be) a major beneficiary.

Investors backing a recovery at PnP should acknowledge that this might impact Boxer’s growth prospects. In a consumer market without any real growth, a better-performing PnP implies slower growth for Boxer…

What we know now

Our original mission was to leverage alternative data to learn more about Boxer. In doing so, we’ve shown that Boxer trades well against the market leader in lower-income consumer categories. As a discount retailer, there is some evidence that Boxer is reaching the limits of what its model can offer existing customers. Expansion into new territories is a viable growth driver for Boxer over the next few years.

A larger store base will require Boxer to build a more complex supply chain, most likely into territories where PnP already has infrastructure. More sharing of infrastructure may be required and is perhaps necessary to match peer-group efficiencies. However, a separately listed Boxer raises questions about how the costs and returns of building and operating an integrated supply chain will accrue to minority investors.

Finally, in a weak economy and a relatively concentrated market, analysts should be careful not to double-count growth going forward. Boxer has grown ahead of the market in the past, partly because PnP has lagged. Going forward, if investors believe in a PnP recovery, the outlook for Boxer must be more modest.

In October last year, Woolworths announced that it had acquired 93.5% of Absolute Pets – a chain of retailers selling pet food, toys, healthcare goodies and accessories.

It’s no secret that the pet category is growing quickly in South Africa. In 2022, the market was estimated to be worth more than R7 billion. That same year, we showed how 22seven users who owned pets spent an average of R1,213 per month on their upkeep. That figure has certainly increased.

Despite the range and variety of pet products having expanded exponentially in recent years, the market remains fragmented and therefore attractive to bigger retailers who are jumping at the opportunity to build out chains of pet stores and consolidate consumer spending.

The Shoprite group was first in 2021, when they launched their stand-alone Petshop Science stores. And now Woolworths has joined the fray, hoping Absolute Pets will accelerate the retailer’s existing pet strategy.

To analyse the merits of this strategy, we did a deep dive into the spending habits of 22seven pet lovers at more than 360 pet and vet stores nationwide – not just the ones that sell food, healthcare, grooming and play products, but also services like grooming and kennels. (Unfortunately, we don’t have a view of how much is spent on pet food bought directly from grocery stores and other general retailers.)

The objective of our research is twofold: to help our clients better understand the business that Woolworths has acquired; and to contemplate what that business might become by analysing the market in which it operates.

Prime my pup

Let’s start with Absolute Pets as a standalone entity. It’s an impressive business – by far the largest specialist pet retailer that we can identify from the 360+ pet and vet stores frequented by 22seven users. Accounting for 29% of total pet spend over three months to December 2023, Absolute Pets is 3.8x the size of its next largest competitor: petzone, part of the West Pack Lifestyle group.

The chart below shows the nine largest pet retailers by spending share. Together, those nine account for c70% of total spending on pets. The remaining retailers account for c30% of spending share, demonstrating just how fragmented the market is. (Absolute Pets accounts for the same percentage as the entire ‘Other’ category, made up of 300+ smaller stores, vets and pet services.)

But wait, there's more...

The full report is available to clients – showing comparative spending across the major pet retailers and where Woolworths might be able to find real growth in its acquisition. If you would like the full picture, contact us to learn how you can pay for research via your broker or subscribe directly.