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This week we speak with Dylan Piatti, Managing Director for Advantage Africa, to understand how COVID-19 is impacting life and retail in South Africa.

Q1 - Restrictions in South Africa have been quite severe, how has this impacted the CPG industry and how has it tried to mitigate against this?

Part of the lockdown restrictions have included no sales of alcohol, as well as limitations on what can be sold via retail channels. For the grocery sector, only government allocated “essential items” could be sold to shoppers, which meant that many shelves were cordoned off as non-essential goods. The impact of this was significant for both suppliers and retailers as they tried to manage supply chains and sales expectations given these restrictions.

For example, the initial lockdown created panic buying from consumers generating unprecedented demand for specific goods such as toilet paper and baking items. The challenges for category sales have impacted some FMCG players to the extent that they have realized less than 20% of projected revenues for this period. The closing of schools, restaurants and leisure facilities has adversely effected beverage sales. For alcoholic beverage suppliers, the export market was also initially closed due to road transport safety concerns, so alcoholic beverage suppliers lost both retail and on-trade sales. Talking to a large retailer recently, they expressed how fruit juice sales have been disappointing as they have no “lunch-boxes” to fill. With fewer shoppers, restrictions on the number of people in a store at any time, and social distancing protocols implemented in checkout queues, impulse buying has dropped with the hardest hit being the chocolate and snack suppliers.

The CPG industry response has taken a human-centred and people-first approach. As a result, improved safety measures for staff have been paramount. These have been followed by adjustments to specific category fulfillment focus. The latter has led to interesting developments in supply chain innovation in attempts to find pockets of value through efficiencies.

As we pivot (as of 1 June) into a lowering of the restrictions, alcoholic beverages are now allowed to be sold, however, bars, restaurant and entertainment venues remain closed. All retail items can be sold in-store without restrictions. One might think that this means business as usual – however, the impact of supply chain adjustments has garnered learnings that have accelerated digital transformation of process, planning and delivery as well as investments in logistics-as-a-service.

The severity of lockdown in South Africa meant that there was no time for suppliers to adjust to try and eck out as much revenue as possible. The luck of the draw being which category you play in – with home, personal and baby care seeing some of the best results, along with bakery goods. The ramifications on CPG business from nine weeks of hard lockdown mean that significant rationalizations have taken place – what this means for the mid to longer-term for capacity to fulfill and serve customer expectations remains to be seen.

Q2 - During this time, many markets have seen a significant ramping up of e-commerce capability and demand. Has South Africa seen similar trends? What other innovations have you seen in the industry?

Talking to a personal care, baby and home care supplier recently, they expressed how they wished they had invested in e-commerce capabilities over a year prior. In 3 months, they had realized 600% growth month on month in e-commerce revenues. A major retailer’s senior buyer informed me that one of their banners that had little to no e-commerce sales pre-COVID had realized 450% increase in online sales.

The ramping up has been significant but approached in different ways – those in one camp who had no choice to react and invest, those that had already started on the journey who accelerated their development and those who were focused on online and were able to pivot into additional revenue streams.

Innovations include new partnerships between pure play online companies to provide logistics support to brick and mortar retailers. It has also seen the rise in prominence of online grocery shopping services, both retailer-owned and one-stop service providers aggregating across retailers. Additionally, we have seen restaurants become online food delivery companies, breweries become soup kitchens and sanitizer producers and clothing retailers become locally sourced online grocery suppliers.

Q3 - In March 2020, South Africa’s sovereign credit rating was downgraded to ‘junk status’, do you anticipate that or lasting impacts from the pandemic having larger effects on the industry in the long term?

The downgrade was already going to put pressure on the CPG and retail industry, especially given the challenges that consumers are already facing in a highly indebted economy. Escalation in basic commodity prices will have lasting effects across the CPG and the retail sector, however, if we are able to scale-up local production of basic inputs this might be slightly mitigated. Government has created a Solidarity Fund with contributions from big business and the wealthiest in society aimed at bringing some financial relief to small and medium enterprises, specifically those generating employment. However, this is not enough to support these businesses sufficiently and we are seeing several closures with an increasingly adverse effect on an already disastrous unemployment rate of over 35%. There will be pressures across the board, however, I do believe that this will drive business innovation and further efficiencies. How long the impact will last for is anyone’s guess.