The State of Logistics in South Africa

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The South African logistics sector has long been plagued by consistently high costs and the 7th State of Logistics Survey shows no signs of the trend abating. The survey released on Tuesday 8 March by the Council for Scientific and Industrial Research (CSIR), IMPERIAL Logistics and Stellenbosch University found that between 2008 and 2009 total cost of logistics decreased by just 1.2%, from 14.7% to 13.5% of Gross Domestic Product (GDP).

These figures are considerably lower than forecasts estimated and indicate an under performing logistics sector. Considering the declining nature of the price of diesel and inflation, the two leading cost drivers, a drop closer to 12.5% could’ve been expected.

There was also a drop in total tonnage as well as ton/km of 4% and 3.7% respectively and less freight was transported in 2009.

On the environmental side, 23 million tons of greenhouse gasses were emitted due to land freight transport activities, 20.3 million tons of which was due to road freight.

The survey found that approximately one third of transport activity in South Africa is outsourced and also stated that growth opportunities were to be found in growth in outsourcing and not among available outsourced freight.
A call has been made for further collaboration between the private and public sectors to enhance the economic infrastructure and promote economic growth and job creation. In addition, it is noted that a move away from mediocrity and strive for world-class standards to ensure the envisaged 7% economic growth annually, for the next 20 years.

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How valuable is the convenience format to South Africa’s major food retailers?

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There has been a great deal of hype around the Branded forecourt store ever since the first Woolworths / Engen store was launched in 2000, but in the 10 years since then the partnership has only managed to find 43 suitable sites and still do not distribute nationally.

I am not implying that there is not a space for convenience retailing in our market, it has been proven that the format works very well. I am simply warning against the over estimation of the size of the target market and the availability of suitable sites for stores.

Convenience retailing is a very specialist form of retailing and the costs associated with selling from a small store are often underestimated, especially if there is an aggressive store roll out plan. It is also difficult to find suitable sites and even more difficult to find operators who are able to make the significant investment and have the necessary retail skills to manage what is an intricate, hands-on business.

Pick n Pay and Fruit and Veg City have aggressive plans for the convenience format. They are both very good retailers and I have no doubt that they will execute the projects to their full potential. It’s the potential size of the market that remains to be seen. I don’t believe that retailers should be looking for their growth to come from the convenience format but perhaps a better question to ask is, can they afford not to participate in the sector.

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Foodco's got game
This week marked the official launch of Game’s new ‘store-in-a-store’ concept with the opening of Foodco, at their N1 City outlet. After 4 decades of delivering “quality general merchandise and non-perishable groceries for home, business and leisure,” Game has earned a reputation as a quality discount retailer, and Foodco is no exception.

The vision is simple and straightforward, Foodco is a mean, lean one stop grocery brand. No frills, no fuss. After conducting extensive research, across the country, with numerous candidates, the brains behind the new brand came up with their new strategy and it can be summed up in four words, which is also the brand’s philosophy: fresh; fast; easy; value. And that’s exactly what you get. New stock will be delivered daily and Foodco’s private label, which goes by the same name, provides a host of alternative options to your favorite purchases at unbeatable prices.

Now, before anyone starts being cynical and pointing fingers and Walmart, stop. This project was in the pipeline before any foreign investment talks were even a whisper. So, hats off to Tyrone Vieira and Richard Millson who were in large part responsible for driving and launching the new brand. This is big step to take, and it goes without saying that the risk is also sizeable, but sticking to Game’s value driven guarantees, it’s hard to see how this could fail.

In addition to the new grocery brand, Game are also introducing Liquormart, stand-alone stores which will be found outside various Game and Foodco stores. Liquormart will offer an extensive range of alcoholic beverages at discount prices.

The launch only took place a few days ago, but the store has already been open for just over a week and to call it a roaring success would be somewhat of an understatement. A colleague of mine whose mother lives in the area, reported that she had been to the new store intending to do her grocery shopping only to find hordes of shoppers already swarming the new discount outlet!

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Last week, after an extensive strategic review a few months ago, Woolworths announced that it would be buying out its 76 South African franchisees. Simplifying the complexity of business was the main driving force behind the decision and cutting out franchisees is the easiest way to accomplish that. Franchisees only account for 10% of Woolies’ turnover and recently their performance has been disappointing. "It's important to protect your brand; if the franchisees are not doing well, it's better to be the captain of your own ship," said Du Plessis, chief investment officer at Gryphon Asset management. Thanks to good financial results over the past year, Woolies has cash available to fund the buyout. Woolworths have also opened discussion about the future of their African franchises.

Business confidence rebounded in the third quarter, reaching its highest level in two-and-a-half years. A surge of optimism within the motor industry and the trade sector was the main driver of the jump in the business confidence index produced by Rand Merchant Bank (RMB) and the Bureau for Economic Research. That drove the overall index up from 36 in the second quarter to 47 in the third quarter, its highest since the first quarter of 2008, though still well below the neutral level of 50.

New vehicle dealer confidence rose to its highest level in 4 years when its index points surged up to 79 from 49. The industry as a whole enjoyed massive improvements, and sales grew by almost 37% on the year last month and close to 13% higher than July. Despite these positive results, the impact of the carbon tax is yet to be seen.

Retail confidence also climbed, rising by 14 index points to 52 and wiping out all the losses of the second quarter. Wholesale confidence rose to 50 from 47. That was also in line with more positive data on the retail sector — SA’s fourth-biggest — and a recovery in consumer spending, the main growth engine of the economy.

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