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MEDIA RELEASE
1 JUNE 2023
RMB on KasiNomics and its growing impact on the retail property sector
What has a R3.5-billion a year deal in cheese slices for street food got to do with RMB’s opportunities in the retail property market? Everything, when understanding the small but significant differences between rural retail and township retail are vital to success.
In his book KasiNomics, GG Alcock highlights his experience within the informal economies in Africa and the people who inhabit them. From living in a mud hut as a child to becoming CEO of specialist marketing company Minanawe and creating the sliced cheese deal, Alcock’s views of eKasi – the township – as a vibrant, viable market are echoed by RMB.
Looking beyond the wider market opportunity set of the informal sector, RMB has explored the nuances within the space to better understand worth, growth and investment possibilities.
At a recent event hosted by RMB, Alcock introduces Mbali’s story as a kasi businesswoman who owns seven outlets selling whole, secret-spiced cooked chickens. In an average week, he says, Mbali pockets around R100 000 or more. “After investing some of this in three stokvels, Mbali has cash left over and has now become a money lender.”
Mbali’s dream is to open a store in a shopping centre but, by traditional banking requirements, she doesn’t qualify.
Her experience is not unique. While mainstream media talks of “cash crunched consumers”, Alcock lists the financial growth in the premium alcohol sector; housing investments from the stokvel sector; and the hair salon industry that is now a R10-billion a year business.
Perceptions versus reality
To meet the needs of businesspeople like Mbali and countless others trading informally across all sectors requires unconventional wisdom; that is, reviewing the broader market potential and an understanding of rural and township retail.
Perceptions around the two, according to RMB, often lead to the sector being misunderstood. Most people see the informal sector as a single entity and don’t fully appreciate the growth and level of premiumization as a function of the earning and spending capacity of consumers in these markets. The opportunities in the sector are best covered when understanding the dynamics of rural and township retail.
Incoming income
The income base of shoppers in rural settings comes mostly from grants and resource-driven revenue such as mining, whereas township dwellers’ income is mostly derived from permanent employment. In both sectors, the value and growth of informal businesses are not fully appreciated. There are high levels of cash trade in these areas, and this is being spent on premium offerings.
Digging into density
In the township retail sector, density is high but there is also access to other urban centres, whereas rural is far less densely populated but a single trading centre has a greater reach. This is due to its large catchment area and commuters between rural areas and large urban areas should not be discounted.
Infrastructure development
Property developers can largely rely on existing infrastructure in townships whereas in rural areas they often have to construct of a lot of the required infrastructure such as water, road infrastructure and taxi rank logistics which also has to be taken into account as part of the developments.
Value proposition to developers
Developers generally achieve higher development yields in these areas partly due to the rental dynamics in this market. There is generally strong rentals as a result of the very good trading densities in these areas. The value proposition for property developers in these areas can also be seen in the fact that there is little to no rental reversions in these markets compared to that in other retail sectors which bodes well for the market.
Social impact
Development of formal retail space in these areas also have a very important social impact as it assists in creating jobs and the development of key infrastructure. It provides access to services such as banking, insurance and the like.
Says Real Estate Investment Banking Transactor for RMB, Lize Thiart: “RMB is excited by the opportunities both rural and township retail developments bring to all parties involved. There are big growth opportunities in this sector, which we are excited to explore with our clients and the broader market.”
By evaluating the data around the growth of rural housing published by Alcock and his assertion that rural retail is booming, RMB continues to dig deep into these economies, noting perceptions are not always reality across retail as a whole. To dismiss the nuances of these sectors would be to disregard the R3.5-billion slice of cheese.
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