Sefalana margins pressured as household spending slows
Lewanika Timothy | Monday October 14, 2024 10:15
In the latest annual report, the group’s executives noted lower consumer spending, particularly around luxury items, as household incomes continued under pressure
Group Managing Director Chandra Chauhan stated that despite a bounce back in consumer foot traffic at Sefalana’s stores, there was a worrying trend where customers constrict their purchases to staples and shy away from luxurious brands, reflecting limited disposable income.
“We have noted the trend where consumers are returning to more frequent visits to stores and basket sizes have begun to increase. “The consumer is still somewhat cautious and tends to focus more on value packs, necessities, and private label products, rather than luxuries,” Chauhan stated.
The group noted that this change in consumer behaviour has “had a negative impact on gross margins”.
A cautious spending approach economically reflects the challenges facing households. When income available to make purchases shrinks at the household level, it leads to cost-cutting measures in households, which in turn slows down spending in the economy.
“The consumer is still somewhat cautious and tends to focus more on value packs, necessities, and private label products, rather than luxuries. This has had a negative impact on gross margins,” he said
Inflation has been one of the major drivers of low consumer spending. In 2022, inflation hit 14-year highs in August, prompting a series of interest rate increases by the Bank of Botswana to rein in the numbers. While inflation has since slowed to the low single digits, this does not mean a decrease in prices for consumers, providing no relief for household pressures. Rather, the lower inflation means that the rate of increase in prices has slowed down from the highs seen in August 2022.
Sefalana directors further noted increased competition in the Fast-Moving Consumer Goods (FMCG) segment, which has forced the group to look beyond its current revenue streams. There has been an increasing trend in the FMCG industry where wholesalers have embraced retail customers with the lines of difference between the two blurring day by day.
Sefalana executives spoke of 'saturation' in the market.
“Due to the level of saturation in this sector, the group constantly evaluates other non-core opportunities as they arise. “Significant pressure on margins has continued throughout the year due to an increased level of competition across the region and pressure on the consumer pocket. “Margin management has become ever more important with price increases from suppliers becoming increasingly regular.
“The general trading environment has become more difficult,” the directors said.
Sefalana as a group has divisions that include manufacturing and automotive, while the retail side recently added cross-border remittance and foreign exchange services, which have proved popular in the market.