Migrant spaza shops: business lessons from Soweto

A survey on the operations of spaza shops in Soweto  revealed  migrants’  eccentric  business strategies and resilience dynamics. Trynos Gumbo and Simamkele Bokolo analyse the results.

Almost all urban centres of the world are experiencing soaring informal economic activities. Such activities provide much-needed income and employment opportunities to millions of residents, lifting some out of abject poverty. The South African economy presents favourable opportunities to start and operate small-scale informal businesses to migrants and as a result, the country’s metropolitan cities continue to receive thousands of foreign nationals every year.

The origin and growth of the informal economy

Informal economic activities existed well before industrialisation and modernisation processes, although with slight modifications over the years. The origin of the informal economy can best be explained by four views: firstly, where it is considered traditional and operates separately from the informal sector; secondly, where it is the result of relaxing conditions within the formal sector and as such is closely related to this sector; thirdly, where it operates outside the formal sector due to stringent regulations; and lastly, where it operates to support and maintain social networks and relations.

Survey methodology

The survey involved administering 120 questionnaires to migrant spaza shop owners, and conducting 30 interviews with South African citizens owning and operating spaza shops, as well as council officials and community leaders. Qualitative and quantitative data on the business strategies and resilience dynamics of migrants were gathered to better understand how they ran their businesses, and to determine possible ways of integrating their operations within their communities and nurturing meaningful contributions to local socioeconomic development.
 
Most migrants joined the spaza retail trading business a year after arriving in the country.

The results

The survey found the South African informal economy, particularly spaza retail trading businesses, continued to receive migrants from the African and Asian continents (Figure 1).

Most migrants joined the spaza retail trading business a year after arriving in the country (Figure 2 on page 7).

86% had invested huge amounts of money... in their businesses, resulting in significant investments in the township.

A majority (75%) of spaza shops owned by migrants had been operating for at least one year, while very few had been in operation for either less than one year or more than 10 years. The spaza shops largely dominated and flourished within

the township, as they enjoyed a high and lucrative customer base. A large number (89%) of migrant spaza shop owners served more than 50 customers per day.

Migrant entrepreneurs contributed a great deal towards local communities in the form of retail spend (at stores like Cash and Carry, Devland Cash and Carry, Makro and Jumbo), housing extensions, and plot and township development. They also contributed in terms of rental income to landlords, and reduced prices and increased convenience (in terms of time and distance) of basic goods.

A majority (96%) of migrant spaza shop entrepreneurs paid more than R1 500 per month in rent. A large share (86%) had also invested huge amounts of money – more than R30 000 – in their businesses, resulting in significant investments in the township.

Migrants’ resilience and business strategies

Migrant spaza shop entrepreneurs exuded business intelligence and skills gained through informal training and mentorship provided by relatives and friends. They employed several business strategies that gave them the edge over their local counterparts, such as strategically locating their spaza shops, frequently buying a variety of stock in large quantities, adopting strict saving behaviours, offering lower prices, utilising aggressive marketing tactics and generating loyalty by giving credits (Table 1). Migrants enjoyed social, migration and religious ties that fostered strong business networks.

They had strict saving habits and extended soft loans to their compatriots. They also practised hire purchasing by helping relatives start businesses and making them pay back the capital in instalments; the newcomers only owned the businesses once all the money was paid in full.

Migrants maintained simple lifestyles, channelling their profits towards the growth of their businesses by buying delivery cars and other equipment to use in their business operations. They had also forged strong relations with community members, customers and suppliers, generating loyalty and trust among their key business stakeholders.

Migrants also made efforts to learn the basics of local languages to improve communication with stakeholders and facilitate the finalisation of business transactions. As a survival skill, they installed burglar bars and small windows on their shops to secure their goods.

Migrants maintained simple lifestyles, channelling their profits towards the growth of their businesses.

Migrants’ shops operated for longer daily hours, promoting flexibility and convenience to their customers, particularly for basics such as bread, milk and airtime. A crucial strategy they employed was keeping their prices lower to attract and maintain more customers and get good returns cumulatively, sometimes selling goods on credit to promote loyalty and repeat purchases.

Migrants’ spaza shops were situated at street corners to maintain and improve visibility to customers, which helped to boost sales. Sometimes their shops extended towards the main roads and were artistically and brightly painted with graphics of basic commodities to attract customers. They used African and local names such as Phiri to create a sense of familiarity and belonging to the community.
 
They seldom experienced robberies, but when they did they were mostly at the hands of locals. Although there was general disgruntlement by local spaza owners about the way in which migrant entrepreneurs conducted their businesses, especially the lowering of prices and selling of alternative brand products, such as cool drinks that sell fast at low prices, the attacks could not be directly attributed to business strategy tensions and xenophobia. They were more often linked to general acts of hooliganism and store owners being caught in the crossfire during service delivery protests as easy targets.

Conclusions and policy recommendations

Migrants are increasingly participating in the spaza shop business in South Africa’s townships. They are attracted by the large, lucrative market of high-density populations, and have resiliently and strategically recorded huge successes compared to their local counterparts.

There is therefore a need for local government officials and community leaders to formulate policies, programmes and strategies that promote the inclusive development of spaza shop businesses and township communities in general. Migrants should be actively involved in community development. They should be encouraged to employ locals and enter into partnerships with young South Africans and share their experiences and business skills as a strategy for peaceful integration.

Authors: Dr Trynos Gumbo, research specialist, Africa Institute (AI), HSRC; Simamkele Bokolo, former research intern, AI.

This is a summary of a research paper presented at the Urban Informality and Migrant Entrepreneurship in Southern African Cities workshop, hosted by the University of Cape Town, February 2014.