Spaza Shops

It is useful to understand how spaza shops have developed in South Africa. “‘Spaza’ means ‘hidden’ in Zulu.  The term arose during the apartheid era, when restrictions were placed on black people running businesses” (Bear, 2005). During the apartheid era, many of these shops were established alongside or within people’s homes in order to elude the authorities. Spaza shop owners today set up their shops in their residences out of economic necessity rather than fear of persecution. Spaza shops are now legalized on the condition that they obtain a trading license in accordance with Business Act 71 of 1991 (Spaza News, 2005).

A spaza shop’s inventory is usually composed of basic goods like produce, drinks, cigarettes, and bread. Name brand goods tend to sell competitively, whereas many customers are unwilling to purchase generic or secondary brands of products (Bear, 2005; Tladi & Mielhbradt, 2003). Usually, products are referred to by their brand name rather than product name. For example, toothpaste is associated with the name Colgate. The prices of products sold at spaza shops can be found marked up 30% to 50% from wholesale prices due to supply-chain weaknesses. Customers are typically aware of the high prices, and will have a budget ready before the trade (Terblanche, 1991). Overall, the brands and prices of goods at spaza shops play a significant role in consumer buying tendencies.

ADVANTAGES

The table below displays the advantages that spaza shops offer to the community, and the drawbacks to shopping at spaza shops.

Advantages and Drawbacks of Spaza Shops (Ligthelm & van Zyl, 1998)

CHALLENGES

The two tables below give an overview of the major challenges faced by shop owners. The tables also identifies some of the root causes of these challenges and how each of these challenges hurt business operations. The challenges are presented in order of importance as determined by our team following with a brief description of each challenge.

Business Knowledge

Since many of these shops are created very quickly, spaza shop owners deal with a variety of challenges resulting from a lack of preparation and entrepreneurial dynamism. Many spaza shop owners do not keep proper business records or provide good customer service. They also often make mistakes during the costing and pricing of their goods (Bear, 2005). This lack of professionalism in running their shop hurts them in trying to understand how costs can be reduced and what items or practices can be altered in order to maximize profits. As a result, shop owners unnecessarily lose money (Bear, 2005).

Networking/Purchasing Power

Wholesalers are often not willing to give discounted prices to spaza shop owners because they do not buy sufficient quantities of goods. As a result, spaza shop owners must purchase goods at the same rate as any consumer who goes to the wholesaler to shop. In order to turn a profit in their own shop, they then must sell their goods at even higher prices. Because of this, larger retailers can often offer goods at better rates than spaza shops, and as a result spazas lose business.

Distribution System

Some major companies do deliver their products to spaza shops directly, but the majority will not. There are also independent distributors that some shops hire to deliver goods to their shops. However, many shop owners have no alternative but to go and buy their goods themselves. Since many do not own their own cars, they will often have to take a bus or a taxi to get to their supplier, pick up goods, and carry all those goods on public transportation back to their shop (Bear, 2005).

Crime

Spaza shop exterior

Particularly in informal settlements, where the rate of crime is very high, robbery is a legitimate concern for shop owners. The VPUU baseline study (2009) showed that in Monwabisi Park, 40% of respondents reported having their homes broken in to. Spaza shops make very appealing targets because they are largely cash-based businesses. Customers typically pay in cash, and so would-be robbers are fairly confident that a spaza shop will have cash.

Credit

South African banks have been overly cautious in lending money to micro-enterprises (Department of Trade and Industry, 2008). A survey about obtaining credit was given to micro-enterprise owners in Durban.  The survey found many owners had problems trying to secure loans. They received vague information when they were refused a loan, and banks seemed to be uninterested in dealing with these micro-enterprise owners (Skinner, 2006). To many of these informal spaza shop owners, dealing with financial services to obtain a loan is a daunting task. The process and paperwork become tedious, and owners become uncomfortable dealing with finance agents and understanding the jargon related to loans (Skinner, 2006).

Health

The success of a spaza shop is highly dependent on the health of its owner (Rangan, Quelch, & Herrero, 2007). Especially for shop owners who live off a lower income in an informal settlement, basic health services are not as accessible, and people are more likely to fall ill. “The percentage [sic] with fair or poor health in low-income areas [is] higher than in high-income areas” (Chao et al, 2007). If a spaza shop owner becomes sick, it often means they can no longer run their business (Chao et al, 2007).

Gender

Female spaza shop owner

The number of female business owners in the informal sector is over fifty percent, and women running spaza shops are faced with unique challenges (Department of Trade and Industry, 2008). Female shop owners face gender discrimination. They may have difficulty developing professional relationships with other spaza shop owners or suppliers who they want to purchase from. Many of these female shop owners are also mothers, and must split their time between raising children and maintaining their shop. Younger women face more challenges than older women because while older women are more respected in the community, younger women are subject to sexual harassment and are targeted more often in theft (Baseline Survey, 2009). Older women are often able to go to retailers to purchase goods for their store alone and maintain a sense of security.