As the famous words say: "The only constant is change" – a phrase we often use in retail, and undoubtedly true for what we've seen in the market recently. As reported in our article in May, the past two years have put tremendous pressure on retailers, manufacturers and brands to navigate the retail storm. The severe difficulties related to COVID-19 and supply chains, Global conflicts and the rise of inflation have not made the journey easy.
This pressure has cascaded down to Customers, and they can no longer afford some of the products they used to be able to purchase. This is mainly due to less disposable income due to the rise in fuel prices, and subsequently food prices. By understanding customers' challenges in the current climate, we can address them with more clarity and guidance, ensuring we provide our customers with solutions to their needs. Daymon has set out to discover the key concerns and priorities by looking at critical shifts in our annual South African Retail Review tracker survey.
A keynote in retail today: Customers are actively looking for Value.
Out of the research, 97% of Customers stated that the critical change in their shopping habits was due to inflation. They were mainly concerned that there is less income in the household, with the cost of fuel rising, which has impacted their shopping behaviours by not being able to afford some of the products they used to. Beyond price, the South African customer looks for Value in times of significant economic pressure.
Key shifts
The pressures of the past two years are even more evident when we look at the customer priority tracking compared to last year. In the year-on-year review, it was clear to see shifts in customer behaviour – a core increase in focus on priorities. They were mainly driven by Price, Quality, Value and Location – the core needs and the net gains of what customers focus on as they face the new reality.
Price
Price has always been a consideration; however, what has been surprising was the 36% increase in importance compared to last year for Customers. This pressure is seen across the board on all LSMs (Living Standards Measure), with one Customer stating that they "Can no longer afford some of the things they used to buy, having to look at the price". This focus on pricing is not just a statement of concern but is also leading to action, with 68% of shoppers mentioning that pricing has been a critical reason in their decision to shift to a different primary retailer, which will be discussed later in the article.
Quality
Quality is a conundrum in the price conversation, especially with Customers feeling the pressure on their disposable income. Quality and trust go hand in hand, especially in order to get Customers to trust retailers and brands to provide Value. Looking for affordable Quality, not just the lowest price, has increased 11% in importance to Customers. Customers need quality items at competitive prices – retailers need to ensure the products fulfil their needs, and limit the risk of repurchasing a similar product if the one purchased does not see to their quality needs – failure to do this will lead to further financial pressure. The focus on Quality is also a key consideration for Private Brands as well as second and third-tier brands, that means not compromising Quality for the sake of Pricing, but finding the balance between the two.
Value
We cannot consider Pricing or Quality in isolation, but rather as a combination in terms of their perception of Value and how Customers experience this. As discussed, Price and Quality drive the value perception from Customers – being willing to pay for what is adding value to them. Value has increased in importance by 21% when compared to last year, a significant increase. One Customer stated: “I look for value for money more than the price would influence my decision, i.e., Quality is important too."
Location
Last but not least, is the increased importance of Location to Customers. Shopping closer to home initially started due to concern over the COVID-19 pandemic. However, the concern around fuel prices is now influencing the need to shop closer to home. This is showing a surprising 46% increase in importance to Customers as they navigate the current landscape. Furthermore, 47% of Customers also stated that they shop closer to home more than they did a year ago. Customers are no longer looking at their activities in isolation, but rather as a combination of how this will have a net impact on their budget.
"When only a few items are cheaper than stores closer to home, but it will cost an extra R30-40 fuel to drive there, the saving isn't worth it."
When considering the research done in 2021, there was a decline in the importance of ratings not critical in the cost of goods, mainly referring to experience and 'add-ons' to a product. The reduction in the ranking of importance, as compared to last year, was seen in:
- Availability – customers are more willing to transition to different brands based on price if their preferred brand is unavailable. This is further driven by the increase in what we see as a trend in brands where Customers are increasingly becoming brand agnostic.
- Shopping and Pay Point Experience – this is driven by a pure focus on Value - while still wanting to enjoy the shopping experience, it has declined in importance in the current economic landscape.
- Sustainability – while still a key consideration and increasingly, so as Customers are becoming more conscious, there has been a drop in importance for Customers as their core decisions are now driven by pricing and value considerations - focusing on what they can afford.
- Innovation – while being an excitement driver, it is not a key importance factor in the current climate, as customers are looking to navigate the core challenge of affordability.
A clear view of the shift of Customer priorities is evident, which retailers (and by extension, Brands and Manufacturers) must consider as they navigate the immediate term to gain Customer trust and keep it for long-term gains.
RETAIL SHIFTS
While we spoke about importance factors earlier in the previous segment of the article, we can now see the impact of these factors in reported behaviour, mainly focussing on Price, Value and Location, and how this has shifted the consumer’s behaviour.
Naturally, retail shifts are expected based on the pressures that Customers face based on their priorities. The considerations have shifted how they are shopping and where they are shopping. Of the participants in the research panel, 25% said they had changed their primary retailer over the past year. The key reason for changing their primary retailer of choice was lower prices, better value for money and location of the retailer in terms of distance to travel.
Prices
The pressure of fluctuating prices is no longer impacting only brands, but retailers too. Loyalty to a specific retailer is under significant pressure, with 68% of Customers stating that they changed to a different retailer mainly due to price.
Location
50% of the shoppers who changed their primary retailer mainly did so due to location - preferring to shop at retailers closer to home.
Value:
Value is constantly discussed in the retail landscape, 43% of shoppers stated that Value beyond price has been a critical reason for their change of primary retailer.
Customers have quickly recognised the cheaper alternatives and made the necessary lifestyle changes and adaptations, leaving some brands seeing a significant declines and others the opposite, a significant gain.
The challenging economic climate in South Africa has led many customers to explore new ways of maintaining the conveniences they were used to whilst sparing their wallets. Overall increased inflation appears to be the most significant strain - shifting what Customers regard as necessary, but also more critical and concerning is the change in shopping behaviour. Brands and retailers need to consider this vital in the battle for Customers in South Africa.
About Daymon
Globally, Daymon is known for building brands, with our key focus on building Private Brands. We are the only solution provider that influences all aspects of Private Brand development, from strategy to execution to consumer engagement.
Our unique approach helps retailers and brands set themselves apart — boosting brand presence, category effectiveness, and speed to shelf. We offer a full suite of best-in-class brand development services, including Brand Strategy, Category Solutions, Business Intelligence, Analytics, Client Services, Sourcing, and Brand Engagement. For more information, visit the Daymon partner page here or visit https://www.daymon.com.
- Roelien Havenga – Director of Business Intelligence (Africa & Latin America)
- roelien.havenga@daymon.com
- Bianka Bothma – Daymon Business Intelligence Analyst
- bianka.bothma@daymon.com
- Chrystle-Dee Grey – Daymon Business Intelligence Analyst
- chrystledee.gray@daymon.com
- Kym Wright – Daymon Innovation and Insights specialist
- kym.wright@daymon.com
Sample, Quantitative Research: (LSM 5 – 10, n = 1500, Sep 2022)
