Business

Discounting rises as economic pinch gets tougher

2019-07-24 20:50

At least 30% of the total volume of sales in South Africa last year were at a discount. That’s up 3% from the previous year. This comes amid an economy that contracted in the first quarter of the year by the biggest amount since 2009, and an unemployment rate that is at long-term highs.

Discounts may be good news for bargain hunters, but bargain buys aren’t always good buys. Consumers sometimes make poor decisions because they’re afraid to miss out on discounts, warns Kerith Botha, managing director of Nielsen Connect SA.

According to a new Nielsen research report, 75% of South African consumers know what their groceries costs and will notice a price change. In 2017, 68% said they knew what the items they ordinarily bought cost. In addition, 31% said they actively looked for promotions and 16% even went to another shop to buy the brand of their choice if it was available at a discount.

Just more than 20% of consumers will visit another store if it offers better discounts, while 34% said they would not change stores but do actively look for items that are on discount.

Furthermore, 16% (2017: 22%) say they only buy products on discount if they are already familiar with the brand and like it.

Botha said it was clear that South Africans were trying to lower their cost of living amid increasing petrol prices, taxation and higher electricity and water tariffs.

The relatively low inflation rate (4.4% in the first quarter) is not bringing consumers enough relief.

According to Nielsen, promotions attract consumers to the shop and push up sales temporarily, but over the long term the effects are not always positive.

The high incidence of discounted sales in the domestic retail market is clear from last year’s figures. Studies on pricing and promotion in 2017 and last year show that the frequency of promotional offerings rose by 3%.

A relationship has been found where more frequent promotions lead to higher consumer sensitivity to regular prices, which in effect means consumers are being trained to buy on promotion, Botha said.

Because two-thirds of discounted products are sold at a loss, it may not be worthwhile for retailers. Out of more than 200 items that were analysed, the price was only high enough to make money in 33% of cases, meaning 67% never broke even. 

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November 10 2019