The attrition of locally-owned spazas in a selected South African township

Abstract

Spaza shops are a prominent feature in South African townships. Their name dates back to the apartheid years and references their stealthy operation because of government legislation that made township trading by Black people illegal. The spaza shop served as a vital lifeline for the formally unemployed, a vehicle for the necessity entrepreneur and a stepping stone to the formal business world for the multitudes of disenfranchised citizens who were deprived of opportunities, advancement and self-improvement. In recent years, fierce competition between South African and foreign-owned spaza shops has boiled over into xenophobic violence directed against foreign spaza shop owners. Studies have shown that in certain townships foreign-owned spaza shops have become numerically dominant. The reasons for this are varied: foremost among them appears to be price competition, although the reason for the inability of South African spaza owners to compete successfully on price has still not been clearly articulated in the literature. This study sought to determine some of the relevant factors by conducting a survey and comparing the demographic features of the operators to determine if demography affected the ability to compete and hence affected sustainability. The surveys were conducted in a representative apartheid-era township of the Western Cape called Delft. A count survey was also conducted in a middle-class suburb with formal grocery shops classified as SMMEs with a decades-long history of generational small business and property ownership, to compare the levels of foreign domination. The results showed close similarities in levels of education and lack of prior business experience in the two groups of owners, a strong indicator of business success or failure. However, the majority of foreign operators were significantly younger and had fewer or no dependants to support. This factor enabled them to sustain price competitiveness for longer periods of time. The resultant profit margin decrease was untenable for local operators with higher personal expenses, who either closed down their businesses or let out the properties to foreign spaza operators. The count survey in the middle-class suburb revealed similar dominance by foreign operators. The results prove that demographics can be a decisive factor in the price competitiveness of new market entrants regardless of the experience, business acumen, financial strength and educational accomplishment of established operators.