Challenges of small family groceries shops in South Africa

Abstract

It is estimated that the failure rate of small, medium and micro enterprises (SMEs) is between 70 per cent and 80 per cent. Millions of Rands are being lost on business ventures because of essentially avoidable mistakes and problems. It is maintained that often the ideas are good and the people behind them are competent, but “they do not have a clue of how to run a business” and have no underlying appreciation of business fundamentals. Problems encountered by small businesses are numerous and can be described amongst others as being environmental, financial or managerial in nature. The objective of this chapter is to establish to what extent owners/managers of spaza shops (small family businesses) in a typical South African setting, experience selected problems or issues as negatively influencing the success of their small business. The spaza shop is as a small family owned business who sells goods from home in the black suburbs of South Africa. Spaza is a Zulu word meaning “hidden” or “camouflaged”. As a result of strict legislation in the past, spaza shops traded in secret. Up to January 1989, spaza shops were illegal, but were then legalised on condition that they obtained a trading licence (Marketing Mix 2000:12). Further to this, the aim is to investigate whether relationships exist between these problem categories and selected demographic factors. A questionnaire was constructed and judgment sampling was used to solicit the responses of 300 spaza shops. The following were identified as the most prominent problem areas influencing small businesses in the Gauteng area of South Africa namely, economic factors, competition, socioeconomic problems and change. Significant relationships were identified between demographic variables such as management qualification and background of the respondent and certain problem categories.

Factors Affecting the Business Performance of Small Businesses in Sekhukhune

“…Studies conducted by various researchers (Fatoki and Garwe, 2010;Van Scheers, 2010;Thornhill and Amit, 2003) confirm that 75% of the small businesses in South Africa remain unsustainable until they graduate into established firms. The estimated failure rate of SMMEs in South Africa is between 70% and 80%, while less than half of newly established businesses survive beyond five years, resulting in millions of rand being lost on business ventures.…”

“…One of the reasons for this is that commercial banks believe that lending to SMEs is less profitable than lending to large businesses. Notably, lending to small businesses involves high credit administration costs and high risks (Okpara and Wynn, 2007;Van Scheers, 2010;Abor and Biekpe, 2006;Pansiri and Temtime, 2010;Ladzani 2010;Mambula, 2002;Gill and Biger, 2012). Collateral was found to be an essential determinant for accessing finance.…”

Is good corporate governance practice the panacea for small-to-medium businesses operating in the South African retail sector?

“…The opportunity cost of holding excess cash, however, could be high, especially under high interest rates. A target cash balance that involves a trade-off analysis of covering cash deficiency and avoiding excessive cash balance, thus needs to be established (Cui, et al;2010). A cash flow forecast, or budget, is a recommended cash management tool, which can help small businesses predict their business' cash inflows and outflows over a certain period, and also identify potential cash flow gaps-periods when cash outflows exceed cash inflows when combined with the business' cash reserves.…”

The Financing Options for New Small and Medium Enterprises in South Africa

“…South Africa's low new SME creation rate paints a bleak picture of the SME sector's current potential to contribute meaningfully to job creation, economic growth and more equal income distribution. In addition, 75% of new SMEs created in South Africa fail within the first two years of operation (Scheers, 2010). Various challenges and impediments prevent the creation of new SMEs as well as cause the high failure rates of new SMEs in South Africa.…”