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Woolworths in the post-apartheid era

Updated Friday 18th October 2013

Can a supermarket success in a changing economic environment?

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Inside Woolworths South Africa Copyrighted image Icon Copyright: BBC 2014 marks the 20th anniversary of the end of apartheid and South Africa’s transition to democratic rule and, although too slowly for some, South Africa has been changing.

In an episode of Escape from the Boardroom we see the Chief Executive of Woolworths wrestling with Woolworths’ response to the changing demographics of the consumer markets they face. It is clear that there is growing economic power amongst formerly disadvantaged groups; black incomes are growing and there is a growing black middle class. In 1993 (the last year before the first free elections) Black South Africans represented just 35% of purchasing power (compared to 53% for White South Africans), by 2009 Black South Africans represented 4 percent of purchasing power; this has continued to increase.

In the documentary we see signs that the response of this retail chain to luring in new black customers is somewhat tentative and that they are concerned not to lose their traditional white customer base. To understand why their response may be a little tentative we have to look beyond the headline figures. Whilst Black South Africans may have around half the purchasing power, they make up 80% of the population (with white South Africans being about 9%). Average earnings for Black South Africans have increased, but (in 2013) they are still only one sixth of white average earnings. Health statistics also tell a graphic story. Life expectancy, at birth, among the white population is 72.5 years whilst among the black population it is only 55.8. A small elite group of black South Africans have joined the very affluent, but most senior management roles continue to be held by white South Africans.

The overall picture that the Woolworths story illustrates is that South Africa is changing but that this change is often very slow. The country continues to tread a difficult line between the kind of radical change which destroyed the economy in Zimbabwe and failing to meet the aspirations of the millions who live in poverty.

This context sets important challenges for the firms who operate in South Africa. Not only do they face changing markets and need to reach out to new consumer groups. They also face important ethical challenges in regard to the social transformation of the country. Government initiatives, such as the Black Economic Empowerment policy, place pressure on firms to meet objectives in terms of ownership, management control, employment equity in firms, skills development and enterprise development. These are targeted at engaging firms in contributing to the economic uplift of disadvantaged groups. Firms’ responses range from active engagement through box ticking to active attempts to undermine this approach.

The challenge for these firms is not just how to succeed economically in a changing environment but also what contribution they will make to the social transformation of this fascinating country.

 

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