Informal food sector makes up 40% of food market

South Africa’s informal food sector makes up at least 40% of the food market, meaning that informal trading contributes notably to the economy, while providing consumers with easy access to food staples.

The informal food sector is valued at about R404 billion, with the formal food sector holding the other 60% of the market. Collectively, the market is worth R1.02 trillion, according to information presented by Pick n Pay and calculations by Moneyweb.

Efficient Group economist Dawie Roodt says the informal food sector is mostly comprised of small, unregistered businesses that sell groceries. These are the spaza shops, home businesses and street vendors. It’s the person selling fruit on the sidewalk, or the homemade biscuit business trading through the kitchen window.

Roodt says the relative size of the sector comes as no surprise and it’s gaining importance, particularly as the economy has come under pressure in recent years.

When people don’t have much hope of finding a formal job, they open their own, small businesses. The informal food sector is thus also important as it plays a role in job creation. He adds that people or entrepreneurs looking to open a small business lean towards food businesses because everybody has to eat.

Mike Schüssler, chief economist at Economists.co.za, agrees the informal food sector is important as it offers exactly what people need – cheap food near them.

For the poverty-stricken, the informal food sector is both affordable and accessible. He adds that people are also becoming more aware of the convenience of buying bread or milk from nearby businesses instead of going to a supermarket.

And according to Roodt, informal food prices are probably lower than for similar foods in the formal sector.

Shoprite has the largest slice of the pie in the formal food business and Woolworths Food the smallest at 3%.

As informal traders are not registered officially, it’s hard to claim taxes, says Roodt. But if they buy from wholesalers, VAT has likely already been imposed.

The informal food market will gradually form part of the formal sector, he adds. “This is a natural process as the economy becomes more sophisticated.”

– Moneyweb