SOPA Trading Company: Balancing Value with Growth

A drive around South Africa today reveals the extent of retail development over the past few years. Shopping malls are appearing on doorsteps with almost alarming alacrity, as retailers buy-into the notion that convenience brings custom. That very same philosophy was the cornerstone of a successful business which launched in Cape Town during a very different time in the nation’s history.

King Pie Opening 15.10.2012SOPA Trading Company is based in Mitchells Plain, a large township in Cape Town. Today the business is a thriving independent retail and wholesale operation, operating under the Winners brand and providing working class township dwellers with discount products.

The business was created in 1983 by a group of entrepreneurs and businessmen, headed up by Mr Hamza SM Essack, who remains Chairman of the SOPA Group today. His son, Mohamed Amien Essack, is Managing Director for SOPA Trading Company and explains how it all got started:

My father founded the business with a group of entrepreneurs who had collectively seen an opportunity to provide a retail service to the working class areas of Cape Town.

At that time Apartheid was prevalent and the townships were lacking supply of goods. Most businesses were located in the upmarket areas of the city and the black and non-white townships were very underdeveloped and not well serviced. SOPA Trading Company was therefore set-up to build a retail outlet right on their doorstep and in 1984 the doors opened to the Winners supermarket.

At that time the lack of infrastructure and a perceived lack of safety and security added operational challenges to the venture; it was hard to encourage wholesale suppliers to come into Mitchells Plain as the road system was poor at best. Instead the company organised its own fleet of vehicles for many years, although circumstances have greatly improved according to Essack:

Transport has improved significantly and there have been rail and road upgrades which have enabled heavy duty trucks to enter the township and deliver items. It has made life much easier and we are now able to purchase supplies from Makro, who are now part of Massmart – who in turn are part of Walmart.

The rising cost of fuel, combined with the improvements in the area, mean that we for the most part now rely on external transport companies for shipping which keeps our costs down,” he adds.

WinnersSM1Today SOPA Trading Company operates as part of a group of businesses; it is the holding company for the Winners Cash and Carry outlet as well as the supermarket and is 100 per cent owned by SOPA. Its sister company SOPA Wholesalers provides a distribution and delivery arm which increasingly involves the import and export of products. A third entity in the group is SOPA Properties, which Essack says is involved in housing property investment, enabling the group to diversify its income portfolio.

We opened the supermarket in 1984 along with three other branches in the Cape Flats region but in the early Nineties we decided to consolidate the business in Mitchells Plain,” Essack recalls. “By the end of that decade we were seeing a lot of non-whites who had been previously disadvantaged, and were beginning to try their hands at entrepreneurship by launching their own small businesses. A lot of these industries were Spaza shops run from the front room of a house and serving the residential block – and these businesses needed access to supplies. We therefore launched the Winners Cash and Carry wholesale business and were the first to supply these entrepreneurs in the region.

Today the Cash and Carry business is run from a 2,000 square metre site which has a further 2,000 square metres of warehousing. The supermarket covers an area of 1,800 square metres and we have 215 permanent staff across the businesses,” he continues.

Essack indicates that business has been good and the supermarket capacity has increased by 50 per cent in the last decade, while the floorspace for the warehousing and Cash and Carry has doubled. He suggests that there are a multitude of reasons for this growth:

Demand is of course the main reason for our growth and the wholesale side has enjoyed great demand from the small local businesses. However of equal importance is our ability to deliver what the customer wants and you need to carry all of the goods in stock. About four years ago we invested in a new stock control system which involves scanning bar codes and this has made stock taking and supply chain management a lot better.

Because our shop targets the lower end of the market, we have to keep our prices competitive and in order to do so we have to buy stock in bulk to get the best discounted rates from suppliers and that also plays an important role.”

Essack suggests that the last couple of years have been challenging price-wise, for an industry with notoriously small margins: “Because of the global economic crisis there has undoubtedly been a knock-on effect on people’s buying power,” he acknowledges. “But we have to remain competitive on the cost front and at least the last quarter of 2012 is giving us positive indicators that business is picking up.

Another important consideration is the popularity of each brand and product – and with over 37,000 different products on sale at Winners, that sophisticated stock control system not only indicates best sellers but helps Essack’s procurement team with forecasting.

We stock all of the leading brands such as Coca Cola, Lays/Simba, Tigerbrands, Nestle, Nampak, Kelloggs, Unilever and Cadbury – and these of course attract customers to the shops. In addition we have our own in-house butcher and sell pre-packed meats, while we also stock bread which is supplied by the largest bakeries in Cape Town.

The branded items are often subject to increased demand but we have seen a marked decline in the popularity of cigarettes and tobacco in recent years, perhaps due to greater health awareness and education. What does affect us is the increased amount of imported goods from China and the Far East which have been good for inflation (as the prices are often much less than locally-produced food items).”

Whilst many products are an everyday necessity, Essack does not underestimate the impact of seasonal promotions and customer surges: “Easter is a big time for us with sales of hot cross buns proving very popular, while Ramadan is an important time of year in this area and we sell lots of cereals. Christmas is another busy period when we sell lots of luxury items and candies and sweets and in December our revenue almost doubles.

That does put an extra strain on operations and whilst our turnover doubles, our purchasing also has to double and we have to recruit extra staff on contracts. It is a good time for us to dip into our overdrafts!”

The Winners name has become established in the Mitchells Plain area but the challenge of marketing remains a top priority for Essack. Getting your message across on special offers can prove time critical as promotions often have a limited lifespan and the business has made good use of the local press as a means for advertising, whilst the local community radio station and company website have proved effective outlets.

We also use knock and drop distribution but our next step is to look at SMS texting and we are shortly meeting with a media company to discuss ways to text customers our special offers,” he explains.

With already small margins under threat from rising food, fuel and electricity prices, SOPA Trading Company recently bought into the ever-popular King Pie fast-food chain. In October it opened its first King Pie store at the Winners Cash and Carry entrance – and while the reasons for investment may not be immediately apparent, Essack quickly clarifies matters:

We have been looking at various methods to increase our margins and GPs – often the retail sector has 10 per cent or less these days so we needed to find other ways. We felt that the fast-food chain route had a good fit with what we do and that we had a potential customer base for the King Pie store, while the margins are much higher.

It is still very early days but so far it is picking up and the King Pie name is a well-known franchise across the whole country and its customer base has a good synergy with our own.”

The investment in King Pie will help the business to further diversify and help to offset the retail challenges of competition in Mitchells Plain and escalating overhead costs through labour, fuel and energy prices.

Despite all of this he remains hugely positive for the future: “We want to look at other businesses and perhaps the petrol station business may provide some opportunities but I think that the import and export of fast moving goods is one of our biggest focuses.

We will continue to concentrate on building the King Pie business and might look to other fast food chains, while the next five years will see us expand our original retail business.”