INTUITION19 MARCH 2021 - Harvard House
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INTUITION 19 MARCH 2021
E-commerce in SA is taking off
Every cloud has a silver lining” is an apt description of the giant leap the world has taken into
technology-driven e-commerce to mitigate the economic carnage wreaked by the COVID-19
pandemic. The headwind has also provided a tailwind. Our worlds changed in March 2020 as
working from home became the norm. CEOs and industry leaders across nearly every business
globally are embracing e-commerce to rethink, reshape and re-engineer ways to cater to tech-
savvy consumers whose lives are increasingly moving online, especially the Millenials. This
article will focus mainly on the e-commerce industry in SA as well as global trends.
Technology has been a part of life
SPEED READ
since the first IBM desktops appeared
in the late 1980s. Historically, e-Commerce penetration in SA is approximately
expensive data costs and low internet 2% of retail sales, well behind the global aver-
coverage were a constraint but the age of 16% (Euromonitor) and 20% in the UK.
landscape is changing rapidly. An Desktop-based payments rose by 54% in 2020
Accenture survey revealed that: a) but this was dwarfed by the 143% rise in mo-
the top 10% of companies leading bile phone payments, a tailwind for cellular
technology innovation achieve 2-3x operators such as MTN & Vodacom.
Nick the revenue growth of competitors; Over 90% of SA business leaders surveyed see
Rogers 90% of South African business and the cloud as core to digital transformation with
IT executives agree on the need to
action required within 1 year.
accelerate their digital transformation with cloud at its core
and c) 96% agree that their organisation is innovating with
urgency with a call to action this year. Merchant Bank estimates online growth of 150% within 5
years to R225 billion, in addition to the reduction in fixed
Although the transition was already underway pre-2020, costs and employees that comes with a 24/7 virtual, cashless
the pace thereof has accelerated due to the pandemic. In a shop, available to all with a PC or smartphone. Let’s look
matter of days, almost every company (JSE-listed to SME) at the 4 main steps in the e-commerce process, namely:
had registered their employees onto Microsoft Teams or platform; payment; storage & delivery.
Zoom as hard lockdowns kicked in. The permanent move
online was set in motion. As bricks and mortar retailers • Takealot, the country’s largest e-commerce platform,
were squeezed by the stringent lockdown restrictions and saw sales increase by 28% before the March lockdown
consumers stayed at home, online shopping boomed, albeit and 41% (R3.7 billion) over the next 6 months.
off a low base. Anxiety and fear of crowded spaces, coupled Many retailers like MR Price & Foschini will opt for
with a higher awareness of digital convenience, has driven omnichannel (a combination of physical and online
consumers onto their laptops and mobile phones as apps shops) platforms. Loyalty programs like Shoprite’s
sprung up to service every need. Profits are there for those “Xtra” which has the largest supermarket membership
companies that can capitalize on the opportunities. It is a base in SA, at 17 million members, is a mobile app.
case of ‘adapt or die’ in many industries. Vodacom has partnered with Alibaba (the ‘Chinese
Firstly, what is the size of e-commerce in SA? Despite the Amazon’) to create a mobile platform incorporating
recent surge in online shopping, e-commerce accounts for payments, insurance and lifestyle products creating
2% of total retail sales, well behind the global average of customer ‘stickiness’ and hence making it difficult to
16% and +20% in the UK. Therein lies the huge opportunity switch to a competitor. SA taxi operator, Transaction
for those companies willing to invest and adapt. Rand Capital, owns a 49.9% stake in used car platform
1
“WeBuyCars”. 6,000
cars are bought each
month and each
transaction is completed
within 15 mins including
documents and online
payment! Opportunities
abound in virtually every
industry - especially as
IT giants like Google,
Microsoft and Amazon
generate online solutions
as the Internet of Things
(IoT) evolves hourly.
• Historically, the vast
informal sector has
favoured cash, creating
a huge barrier to
entry. However, with
tech-savvy Capitec
dominating that market,
the adoption of card-
based and mobile
payments is increasing.
Other banks are not far
behind. According to
Payfast, who process
35% of online payments
in SA, there has been a We live in a digital world like never before.
dramatic switch away from property sector, it has also created a new tailwind
desktop to mobile devices. Desktop-based payments – namely storage and warehouses to cater for
rose +54% in 2020 but this was dwarfed by the +143% e-commerce as no shop is required. Datacentres -
rise in mobile phone-based payments. Based on this specialized warehouses containing thousands of hard
data, mobile devices account for 68% of payments drives for data storage - are thriving and have become
versus 32% via desktop. This opportunity has not been a specialized sector in their own right. SA REITs like
missed by MTN and Vodacom, who stand to benefit Fortress and Stor-Age have adapted quickly and are
as online adoption increases. Instant ETF payments benefitting. Mondi experienced huge demand last year
now make up 20-30% of transactions whilst the for its corrugated packaging (cardboard) whilst the UK
banks have benefitted from is currently running short of
broadening their offerings boxes due to the ‘Amazon-
effect’ and Brexit supply-
away from traditional credit
cards to include debit-cards.
“Payfast process 35% of chain issues. Supply chain
Given the focus on hygiene, online payments in management will make or
break the success of each
contactless-enabled cards
have soared in popularity South Africa ” e-commerce company. It is a
and both banks and retailers vital step - get it wrong once
have embraced this new and you lose a client forever.
technology. WhatsApp is It is as simple as that.
very close to offering a payment service linked to its • Overcoming the logistics of delivering products to
owner, Facebook. Importantly, informal communities rural towns and informal settlements is the second-
have far greater trust (which is non-negotiable) in these largest barrier to online adoption. WhatsApp’s pin-
2 platforms over unfamiliar websites due to the social drop function is now trusted in townships whilst
network where it is easier to track the individual. “what3words.com” has divided the world into squares
• Despite the pain inflicted by the pandemic on the – each 3 square meters in size - and assigned each
square a unique three-word combination giving courier
2companies a precise GPS location. Another option
PROPORTION OF SHOPPERS LURED BY DISCOUNTS
is by acquisition. For example, the acquisition of Mr
Delivery by Takealot allowed them to immediately Italy % of Population
control their logistics network. Fast food apps such as
New Zealand
those of Steers and Debonairs are available in many
UK
townships whilst most food apps delivered fast food
to Soweto. In a nutshell, one courier van frees up USA
+50 family visits to the mall which not only frees up Canada
that precious commodity – time – but the savings on Germany
transport costs further increases disposable income for Ireland
further consumption – it is a virtuous cycle. In the near
Hong Kong
term, security will remain a hurdle to wide e-commerce
Spain
adoption in SA, but technology (such as drones) will
ultimately solve this problem as well. Mexico
• Similarweb, who monitor and sell e-commerce data, France
reported that online visits ticked up in January ‘21 South Africa
and that the average total number of visits to grocery 40% 45% 50% 55% 60% 65% 70% 75%
websites ranged between 4-5 million visits per month It appears that South Africans are the most gullible nation. We
with Woolworths and Checkers gaining the most are easily lured into spending by eye-catching headlines.
market share. Spar doesn’t have an app but it offers
local deliveries. Shoprite’s “Sixty60” mobile app has 6. Fintech - Small Medium Enterprise (SME) funding
seen rapid adoption - the 1-hour grocery delivery app is underserved as banks typically require proof of
is now the #1 grocery delivery app in SA, offering turnover before approving loans. This sector is surging
15,000 products at in-store prices. The competition is with electronically verified data available within 24
heating up but it is early days. Within apparel, January hours, reducing the risks to all parties.
and February have seen online traffic grow +28% and 7. The rise of the “Dark Kitchen” recues the cost of
+35% year-on-year, with Mr Price gaining the most running a restaurant by removing the front of house.
over 12 months. Foschini remains the largest online Dark kitchens just prepare food for online delivery, and
listed retailer however, Mr Price has just announced the often the same kitchen is used for multiple brands.
acquisition of Yuppiechef, a leading SA e-commerce 8. Finally, mobile platforms are key – smartphones
player, to compete in the homeware market. Burgundy are increasingly replacing desktops as the preferred
Fly, who has partnered with Foschini, plans to showcase technology for accessing the web.
its popular SA designer wear, including over 70 top and
emerging designers, online shortly. In conclusion, the importance of e-commerce in 2020
can be summed up through the example of Starbucks. Six
Technology trends to watch in 2021: months into the pandemic, nearly 3 million US restaurant
1. Black Friday and Cyber Monday – traditional workers remained unemployed and the US foodservice
discounting periods over the US Thanksgiving holiday industry was on track to lose $240 billion. In response,
- have morphed into “Black November”. Combined, Starbucks launched their innovative app, which allowed
their online sales now exceed those over the traditional consumers to order via their mobile phone and ensure drive-
Christmas period as consumers anticipate the savings thru collection. It was downloaded by almost 3 million new
on offer. users by August last year. Over that period, orders via the
2. Contactless and scan-to-pay (e.g. Zapper) are surging app accounted for 90% of sales. Starbucks used technology
on hygiene concerns. to reinvent its customer experience, virtually saving the
3. Hi-tech self-service checkout counters, available for multi-national company in the process.
over 10 years in the UK, are now being piloted in SA.
4. Huge opportunities in bill presentment. For example, The opportunities are there for SA entrepreneurs and
a local GP emails a weblink to a 3rd party payment businesses, who have witnessed how the rest of the world
system for secure payment. This can create unlimited is adapting, to leap-frog into the future. Despite the huge
opportunities across all service sectors strides already made by many companies, there is still lots
5. “Out-the-box” online solutions. For example, advance of hard work ahead – especially if online penetration in SA
ordering. Tops @ SPAR took orders during prohibition is going to follow in the footsteps of other countries and
to guarantee that customer demand was met immediately grow from 2% to 20%.
after the restrictions were lifted.
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