E-commerce to be worth R225bn in SA in 5 years as expectations change

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The value of e-commerce transactions in South Africa is expected to surge 150% to R225bn by 2025 in response to a marked shift in consumer behaviour and also changed expectations brought about by the unprecedented events of this year.

E-commerce is defined as card spend activity on an online platform where businesses and individuals can buy and sell goods and services.

While there was already a gradual shift to the greater purchase of online goods and services underway before the March lockdown, restrictions on movement acted as a massive accelerant in pushing South Africa further in line with the global phenomenon of a shift to online consumption.

E-commerce to be worth R225bn in SA in 5 years as expectations change
E-commerce to be worth R225bn in SA in 5 years as expectations change

According to a recent study by Nielsen on the impact of COVID-19 on the FMCG and Retail in South Africa, 68% of South African consumers reduced their frequency of visiting physical supermarkets, while 37% of South African consumers increased their online shopping activity.

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FNB has seen average e-commerce spend to grow 30% year-on-year during the 1st half of 2020 compared to 2019, whilst the average bricks & mortar, or physical spend, declined 12% year-on-year during the 1st half of 2020 compared to 2019.  These figures exclude flights and accommodation spending which accounts for nearly half (47%) of all our online spend.

Businesses are responding: RMB estimates there are now currently about 5 000 businesses online in South Africa with a turnover of R100k or more.

The pandemic has spurred consumers expectations that every business should offer the option to be able to digitally pay for everything, from hailing a ride to paying for groceries and takeaways.

E-commerce card purchases penetration is currently 8% of total card purchases in the South African economy and is expected to grow to 20% in the next five years, a rapid annual average growth rate of 16%.

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Naturally, more developed countries have seen an even more dramatic shift in e-commerce adoption, assisted by wider, cheaper and faster access to internet connectivity as well as developed, economically viable, logistics options. The appeal of convenience, security and simplicity has driven more consumers to prefer a digital shopping experience over the physical alternative.

Recent research by McKinsey Retail Practice showed that in the US, there were 10 years of e-commerce penetration growth in just three months this year. E-commerce penetration was 16% in 2019 but by April 2020 it had hit 33%.

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We may see a similar adoption trend in SA, but the rate of digital adoption is often curbed by the higher data costs and limited access to fibre technology across the country.

The industries that are currently most e-commerce capable and have a high penetration are tourism and entertainment, a variety of goods and professional services.

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Recently the groceries sector has improved their e-commerce capabilities and even though their penetration is currently still low and below the average penetration of 8%, we expect this to be a growth area. The same could be said of the apparel sector.

Looking ahead, the South African business that will likely succeed in the new world will be those that have demonstrated an ability to seamlessly translate their bricks and mortar services to online.

These businesses should cater to as much choice for their customers as possible. This means providing for a customer experience that may commence on their website but ends in a payment made either online, in-store or on delivery. Essentially a good, interactive e-commerce experience is key and the less friction there is in the shopping experience the better for the business to drive customer satisfaction and loyalty.

Ideally, businesses must offer an opportunity for customers to test out a different combination of products or experiences that may otherwise be impractical in physical stores.

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But South African business often face challenges.

It is often difficult to know whether to start small and then scale up over time, or launch with your best offering, but if take-up is slow the initial spend will not be recovered. We, therefore, recommend extensive target customer research and analysis before embarking on the journey and recognising that the approach needs to be flexible because what works in the physical world to entice customers, does not necessarily translate into the e-commerce world.

A shift to an e-commerce offering could also potentially introduce additional costs and complexities to businesses which in some cases cannot be passed on to the end customer, pressuring margins.

It is therefore key to understand the end customer – and often best to consult experts before starting the e-commerce journey – in order to keep costs low and ensure the best chances of success in a rapidly changing and increasingly demanding world.

Aluwani Thenga is Executive Head: Merchant Services Growth at RMB & FNB

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E-commerce to be worth R225bn in SA in 5 years as expectations change - Brand SpurE-commerce to be worth R225bn in SA in 5 years as expectations change - Brand Spur

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E-commerce to be worth R225bn in SA in 5 years as expectations change - Brand SpurE-commerce to be worth R225bn in SA in 5 years as expectations change - Brand Spur

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