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The alleged reasons for violence against foreign-owned spaza shops are perceptions that they have “unfair advantages”, which undermine the viability of their locally owned counterparts. This is according to the Competition Commission’s Grocery Retail Market Inquiry’s preliminary report.
The perceptions of unfair advantage have boiled over in the past, most recently in KwaZulu-Natal, and contributed to tensions between South Africans and foreign nationals, especially in townships and rural areas, and sometimes spreading into urban areas.
“The inquiry noted that some of these advantages may sometimes be ascribed to the creativity and business acumen of foreign traders. However, other factors that grant foreign traders a competitive advantage are illegal in nature,” the report found.
“The inquiry found that the manner in which the ownership of spaza shops is structured contributes to the dynamics of competition between local- and foreign-owned spaza shops,” the report said.
More than half of consumers report using locally owned spaza shops primarily for the procurement of bread. The second most bought item purchased is airtime, followed by dairy products.
A wider product offering undoubtedly makes foreign-owned spaza shops more competitive than locally owned ones.
“A key factor that was found to have a potential impact on the competition dynamic between foreign-owned and local spaza shops was the sale of counterfeit goods,” according to the report.
“The inquiry observed that the most prevalent counterfeit goods sold were contraband cigarettes. Foreign-owned spaza shops were generally found to be selling contraband cigarettes, which have the potential of attracting more traffic to these shops, thereby strengthening their business position.
“The inquiry is concerned that the sale of counterfeit goods appears to confer, upon those spaza shops selling such goods, an unfair competitive advantage as counterfeits are generally cheaper than original, branded goods.”
While foreign-owned spaza shops may have the advantage, the report found a few reasons consumers reported as factors for their preference to shop in locally owned spaza shops.
“The most prominent is patriotism. The second reason cited by consumers is that local traders supply good quality products. The third reason relates to the hygiene of the spaza shop, as most consumers deem locally owned spaza shops to be cleaner than foreign-owned spaza shops,” the report said.
The inquiry found that foreign-owned spaza shops were preferred firstly for their lower prices and secondly for being located closer to home for most consumers. A third factor was the convenience of their operating hours.
Consumers also reported the availability of credit as an appealing feature.
“Lastly, consumers further submitted the availability of stock as an important factor for their preference of foreign-owned spaza shops.”
The report said allegations had been made against foreign-operated retailers during the inquiry’s engagements with local traders. The allegations included that foreign nationals operated without trading licences, did not comply with statutory tax requirements, received preferential treatment from most wholesalers due to their shared religious beliefs, and had access to counterfeit goods.
“The tension arising from these perceptions and the economic insecurity of unemployed local South Africans are said to be some of the causes of xenophobic violence against foreigners.
“Foreign traders, unlike local traders, tend to operate their spaza shops in partnerships as opposed to sole ownership. This allows for both managerial and capital synergies ... thus improving competitiveness.
“The ownership structure of foreign-owned spaza shops confers some advantages that local spaza shop owners do not enjoy. These factors enable foreign-owned spaza shops to realise economies of scale and this confers some level of competitive advantage relative to the locally owned spaza shops,” said the report.
“Most small business stakeholders submitted that other factors fostering the success of foreign-owned spaza shops included their choice of shop location and operating hours. Spaza shops are, by their nature, convenience stores that offer core household grocery items. Therefore, their location and accessibility is crucial for the consumer.”
