Growing SA’s informal market

Zande Africa’s innovative informal market solutions bring efficiencies to spaza shops.

 “The name of the company was derived from a Nguni word that means ‘to multiply’, in reference to our objective to unlock the spaza shop economy, which boasts an annual revenue of over R40bn,” says Ntutela.

Their subsequent analysis uncovered that supply issues were an even greater challenge than cash constraints. “Spaza shop owners, at least once a week, have to either close

shop or employ someone to run the shop while they are away buying merchandise. To address this challenge, we added supply and logistics solutions to our product offering,” says Ntutela.

 Unlocking a market

Getting the initiative off the ground was easier said than done and had to be self-financed by Thabethe and Ntutela. In 2016, Zande Africa received a R1m injection from Merrill Lynch South Africa and AlphaCode, and won R750 000 when it took third place in the SAB Innovations Awards programme in 2018.

“There is a lot of great innovation competing for funding out there, so winning in some of these rounds proved to us that our business idea was on the right track,” Ntutela says.

As newcomers to the fast-moving consumer goods (FMCG) industry, Ntutela and Thabethe had to work hard to build the trust of suppliers and spaza shop owners. FMCG companies also have highly formalised distribution networks, so it took a lot of effort to persuade them to change their business practices and supply spaza shops more directly.

Zande Africa’s first big break came in 2017 when Pioneer Foods appointed it as a distributor. From there, the start-up established partnerships with various companies, allowing it to buy food in bulk on credit. Spaza shops have the option of buying this stock from Zande, in cash or on credit.

Since most of its clients are unbanked, business is limited to cash transactions for up to six months, during which time Zande Africa compiles a portfolio of the profitability and creditworthiness of the shop. Thereafter owners could qualify for an interest-free credit line that is valid for up to 14 days. The cost of the credit line is calculated into the price of the products, which is still 10% cheaper than spaza owners would pay at wholesalers or supermarkets, according to Ntutela.

The company initially used unstructured supplementary service data (USSD) technology, which allows clients to apply for credit and check their balances by entering a specific number on their phone – in the same way mobile operators allow customers to check their balances and buy airtime. While this technology is still offered, most of Zande’s clients have since switched to WhatsApp to access these services.

“Engaging shop owners via WhatsApp creates a heavy administrative burden for us, but it is their preferred channel of communication,” Ntutela says.

To add additional value to their service, Zande Africa has created business opportunities for independent owner drivers and sales agents. The drivers are responsible for product deliveries, while the sales agents act as merchandisers by checking shop supplies during deliveries. “The sales agents keep record of stock movements and place orders for new stock on behalf of the shop owners. Stock is usually delivered the next day,” says Ntutela.

Covid-19 and plans for the future

Competition in the spaza shop market is quite fierce, with Zande Africa having to compete with hypermarkets and discount stores for their clients’ attention. However, Zande Africa has a significant edge due to their ability to timeously supply shop owners with the right products on their doorsteps. “The start-up has turned into something like a Takealot of the spaza shops,” says Ntutela.

Zande Africa has grown to employ 42 people, with warehouses in Ermelo and Mbombela in Mpumalanga. They were in the process of opening another warehouse near Orange Farm, south of Johannesburg, but had to postpone its opening until August because of business disruptions caused by the Covid-19 lockdown. 

“There had been a lot of confusion during lockdown level 5 as to whether spaza shops were still permitted to operate or not. We tried to help by keeping clients up to date with developments via WhatsApp, and supplying them with face masks and sanitiser to ensure their businesses complied with government regulations,” Ntutela says.

He adds that Covid-19 once again unveiled the big gap between the haves and the have-nots in South Africa: “People living in townships had to travel up to 20km and more to buy their food because of the closure of spaza shops. This not only added to the financial burden on these people, who are already struggling to make ends meet, but also posed a great health risk as they had to make use of public transport.”

The company’s plan for the future is to become more digitised. “At the moment more than 80% of our clients are foreigners and they are extremely vulnerable, as more than 90% of their business is conducted in cash. We are looking into solutions to migrate them to other payment systems without adding any significant costs to transactions. The solution will probably be launched within the next year or two,” Ntutela says.

Zande Africa recently also acquired a customer management system tool, which will further enhance its ability to analyse the opportunities presented within this informal market. “We are gathering a lot of valuable market information that will allow better product and service linkages with this economy.”