Submission by Walk-in-25 Management Services (Pty) Limited ...



Submission by Walk-in-25 Management Services (Pty) Limited to Parliament’s Portfolio Committee on Economic Development

Introduction:

Walk-in-25 Management Services (Pty) Limited is the private sector element of a partnership with local communities and business owners, utilising the structures of co-operatives. It represents the existing Walk-in-25 Co-operative retail stores and mini markets (spaza shops) and wishes to make its submission in the interests of small business, particularly in the townships and rural areas.

Our primary focus is the creation and sustainability of local economies, by actively supporting small businesses in the townships and rural areas, through the co-operative business model. This is further achieved by the accessing of business development incentives, provided by The Department of Trade and Industry and other Economic Development Agencies of Government in the Provinces, such as, The Limpopo Business Support Agency.

History:

During the apartheid era most townships were inaccessible and considered to be unsafe to the retail Corporates currently invading these areas. The basic human need of convenience shopping was catered to a certain extent by the spaza shop.

The challenges faced by the Spaza owners were enormous:

• No access to Capital

• No access to Credit

• Unbanked

• No direct access to suppliers

• Logistical hurdles

• No basic business skills training.

Black small business owners were as a result, relegated to the bottom of the pile through these obstacles, and consumers were forced to shop outside their residential areas creating a dysfunctional economic landscape.

Pioneering Black Business leaders such as Dr. Sam Motsuenyane of Nafcoc and many others attempted to amongst others, set up Black Chain and African Bank as well as other initiatives to stem the onslaught, but to no avail.

The advent of the 1994 political breakthrough has done little to stem the tide and the impact of Black Economic Empowerment (BEE) still has a long way to go to alter the status quo, if at all.

Today:

Despite these hurdles, the tenacity of these small entrepreneurs has somehow seen them through these troubled times and by some miracle they survive, albeit in lesser numbers. Today however circumstances have deteriorated even further. There has been a sudden influx of foreigners into this previously locally controlled domain.

On top of all of this the world’s largest retailer Walmart has arrived, and has given a strong indication that their immediate growth area will be the local townships. Is the spaza owner doomed to be obliterated?

Local Economies:

Townships and rural villagers have become “economic deserts”. The fact that malls have surfaced in these areas is merely a façade. Mall tenants are largely stock exchange listed entities, with profits made, flowing out daily into the coffers of the Corporates. No money remains in these economically barren areas.

According to the Bureau of Market Research of UNISA a study showed that there are over 100 000 spaza shops located in South Africa, with 40 000 estimated in Gauteng alone. They collectively turned over R7, 4 billion per annum in 2000, a larger combined turnover of the branded superettes that include chains such as Seven Eleven, Rite Value and Sentra. Each spaza employs two to three people which translated in 2004 to 750 000 jobs according to the study.

Concerns:

The Small business Owner:

How much importance do we place on the small business owner?

There are many examples of the importance of small businesses world wide and the importance of their sustainability. After the Second World War Churchill called for “a Nation of shop keepers” to kick start the British economy.

In the United States, the epitome of free trade and capitalism, the small business is considered to be the back bone of the economy, employing more than half of the country’s work force. The Small Business Association in the U.S. intervenes to assist small business with training and assists with finding alternative sources of funding in order to sustain them.

What measures and interventions are there in place for the local South African small business owner to fight on an uneven playing field with a history of inopportunity?

Walmart’s selling prices

In the July 11 issue of The Star an ABSA Investments equity analyst, Chris Gilmour said a division of Massmart / Walmart, Cambridge Foods, “was planning to grow their store base near transport nodes from the present 26 to 100 by 2015.” This division is directly focused on “low-income “consumers.

“According to Gilmour it was likely that they would not be too concerned if the business operated at a loss in the first few years as its main target would be to increase market share”!

This revisits the argument of “Predatory Pricing” for which Walmart have been historically accused of.

In 2003 Germany’s High Court ruled that Walmart’s low cost pricing strategy “undermined competition” .Walmart have since sold its stores and no longer has a presence in Germany. Brazil, India, Korea and Russia have also been troublesome trading stops for Walmart.

• Unfortunately the small business owner whether in the suburbs, the townships or rural areas in South Africa, cannot sustain himself by making years of losses and he will be doomed to close shop if he were forced to keep prices unrealistically low.

Walmart’s cost prices

On the supply side, Walmart are also known to drive down supplier’s costs of products.

• Where does this leave the other retailers and particularly small business in South Africa? Will they have access to the same pricing from suppliers or will they be out muscled by the double edge sword of higher costs from suppliers due their inferior size as well as cheaper prices in Walmart stores because they can afford to sustain losses.

What’s next on the menu?

Newspaper articles suggest that “the Fruit Spot “a chain of retail fruit and veg stores is the next acquisition on the cards. Where to from there? In South Africa they now have a foot print in hardware and building supplies through the Builders Warehouse and Express brand, liquor through Makro, electronics, white goods, appliances etc through Game, Dion and Makro, groceries and food stuffs from the foregoing including Jumbo Cash & Carry, Shield, Cambridge Foods and CCW. With the range of Walmart’s product profile in the United States any retail division is a potential acquisition, pharmacies, clothing, jewelry, tyre outlets, toy retailers, the list is endless.

Conclusion

It is accepted that South Africa prescribes to a free economic system and foreign investment is welcomed; however this does not imply that we are a laissez-faire state. Strong intervention is needed to assist and to sustain our local small business owner. He was relied upon to provide a service for many dark years when there were no alternatives and it is grossly unfair that he should lose or usurp his right to be an entrepreneur simply because a financially stronger outsider has more cash in his pocket!

It can be argued that banner groups exist to which Spazas can join and enjoy certain benefits. This is simply not enough. Previously disadvantaged shop owners should have access directly to the supply chain; they must have first world shops with point of sale systems and stock controls, Shops must be upgraded to a first world standard, with a greater variety of stock competing on a fair basis with retail South Africa.

It is imperative that we create local economies with their own “velocity of money” through local communities having direct ownership, especially via co-operatives. Drastic, decisive and urgent intervention is needed.

This is critical to the fibre and dignity of the small business owner.

I thank you for allowing me this opportunity.

Basil Manganadelis

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