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South African Journal of Economic and Management Sciences

On-line version ISSN 2222-3436
Print version ISSN 1015-8812

S. Afr. j. econ. manag. sci. vol.13 n.4 Pretoria Jan. 2010




Exploring the management abilities of spaza shop owners in the Nelson Mandela Metropolitan Municipality



S Perks

Department of Business Management, Nelson Mandela Metropolitan University




South African entrepreneurs have a poor skills record, which often leads to business failure. To effectively manage a spaza shop requires applying management functions and some management skills. The implementation of simple systems can assist spaza shop owners to manage their businesses more successfully and even grow. A quantitative study was done, by interviewing sixty spaza shop owners in the township. The empirical results identified the gaps in the management abilities of spaza shop owners in terms of the eight management functions and show that the purchasing, financial and information management function are the most neglected. Guidelines on how each of the functions could or should be applied are given. This research indicates that spaza shops can assist in economic growth and relieve unemployment in the country.

JEL M11, 13, L26, 81



1 Introduction

South Africa is one of the most sophisticated and promising emerging markets in the world, offering a unique combination of highly developed first world economic infrastructure with a vibrant emerging market economy (Timmons & Spinelli, 2003:47). More than 80 per cent of businesses in South Africa can be described as small businesses (Rwigema & Venter, 2005:475). Most South African cities and towns have at least one township associated with them. New initiatives have been taken to renew and re-vitalize the view of South African townships, especially in preparation for the 2010 Soccer World Cup (Wikipedia, 2009). It is within these townships that many small businesses are struggling for survival and growth. Fuller (2003:297) emphasises that "to develop the South African economy, things need to be done at the smallest scale in every township". Policy makers in South Africa continue trying to identify and support those productive, and innovative small businesses that will generate employment and promote economic growth within the country (Dobbs & Hamilton, 2007:296).

In 2000, 2,7 per cent of South Africa's retail trade was from spaza shops, amounting to R7,4 billions (Ligthelm, 2002:1). This illustrates the importance of spaza ships to the economy in terms of contributing towards income generation and possibly reducing unemployment. The owners of these spaza shops start these micro businesses for various reasons, but can nevertheless be regarded as an entrepreneur in that they have identified an opportunity. Small businesses always carry low overheads, which enable them to become more competitive and responsive to demand changes (Kesper, 2000:8).

The manner in which small businesses entrepreneurs manage their businesses can contribute towards becoming competitive with other small businesses. This study explores how spaza shops in the township are or can be managed. As literature on spaza shops is scarce, the literature study includes the management functions in informal businesses, where possible with specific reference to spaza shops. The results of the biographical profile of the spaza shop owners and their businesses, and how they execute the eight management functions proposed by Van Aardt, Van Aardt & Bezuidenhout (2000:150) are tabulated, followed by the conclusions and management implications on how spaza shops could or should apply these management functions. In the next section the research objectives are outlined.


2 Problem statement and objectives

A spaza shop owner, as an entrepreneur, needs a range of abilities to be able to execute daily business operations, requiring him to be a generalist. Hodgetts and Kuratko (2001:616) define a generalist as a person who possesses the ability to view operations in broad terms. Various authors (Smart Force, the e-learning company, 2002:1; Van Dyk, Nel, Loedolff & Haasbroek, 2001:52), identify various skills and daily tasks needed for managing a business, for example financial aspects like budgeting, interpreting financial statements, business. Amoungst others the following are necessary: accounting, business finance; marketing by developing a marketing strategy, selling, advertising; human resource management and labour relations; inter-personal skills for customer services, operations management like finding resources and possible suppliers; purchasing such as ordering goods or services, receiving and inspecting the goods and stock control. Spaza shops should engage in these management activities on a daily basis.

The main objective of the study was therefore to explore how township spaza shops manage their businesses. The secondary objectives of the study were:

  • To define the range of management functions of micro or small businesses in the informal sector which can be applied to spaza shops;
  • To explore how spazas shop owners are applying each of these management functions;
  • To determine the gap(s) between how spaza shops are managed and how they should be managed, and
  • To address how these gap(s) could be eliminated or reduced.


3 Concept clarification

The following key concepts used in the article are defined below.

a) A very small business

Very small businesses in South Africa can be described as owner-managed, having more than five, but less than twenty employees and less than R2 million in assets, except in the agricultural sector (Small Business Amended Act, 2003:6).

b) A micro business

Micro businesses in South Africa can be described as informal, having less than five employees, and very few assets (Small Business Amended Act, 2003:6).

c) A spaza shop

According to Von Broembsen (2008:1) a spaza shop is an informal business run from a room in a shack or small house where customers stand outside and purchase basic groceries over a counter, to the less common and more sophisticated grocery shop.

Both definitions of micro and very small businesses could be identified as fitting the description of a spaza shops. If having the whole family involved (more than five employees but less than 20), spaza shops can be regarded as a very small business. A spaza shop can also be a micro business should it have fewer than five employees. In the next section, the management functions are discussed.


4 Management functions

Management is the process whereby human, financial, physical and information resources are employed in order to reach the goals of a business (Cronje, Du Toit, Marais & Motlatla, 2004:122) or is the tasks and activities performed by managers (Hellriegel, Jackson, Slocum, Staude, Amos, Klopper, Louw & Oosthuizen, 2005:7). The following eight functions are identified by several authors (Cronje, et al., 2004; Hellriegel, et al., 2005:11; Kotler, 1999:9; Mol, 2001:99; Marx, Van Rooyen, Bosch & Reynders, 2004;

Sibiger, 2001:29; Van Aardt, Van Aardt & Bezuidenhout, 2000:150): general manage-ment; human resources; finance; marketing; purchasing; operations; administration or information; and public relations. Table 1 highlights literature on issues within the business functions pertaining to managing spaza shops or small businesses.

In all types of businesses, all these functions are essential to efficiently manage a business, especially a micro or very small business. Ryan (2004:2b) found that spaza shops wanted business training in management, book-keeping, computer skills and marketing. The scope of the functions varies according to the size of the business; for example, the human resources function only comes into play when they have employees. In the next section, the methodology of the study is explained.


5 Methodology

The focus of this study was to establish how spaza shop owners in townships manage their businesses. A survey was conducted amongst spaza shop owners in the Nelson Mandela Metropolitan Municipality in Port Elizabeth, South Africa.

5.1 Sampling

A convenience sample of spaza shop owners in the NMMM, Port Elizabeth, was chosen from all the township areas in Port Elizabeth, Uitenhage and Despatch. Fieldworkers chose the spaza shops within their residential area and interviewed those willing to participate. Although 60 questionnaires were received, the final response rate was 56 as some questionnaires were incomplete.

5.2 Data collection

The measuring instrument used in this survey was a semi-structured questionnaire consisting of two sections, containing mostly open-ended questions. Section one consists of biographical information regarding the respondents and their businesses. The second section contains open-ended questions on whether and how they execute the particular management functions. The reasons, importance and purpose of the completion of the questionnaire were emphasized to the respondents prior to the interview. Self-administered question-naires would not have had the required result as the literacy level of the spaza shop owners was not known prior to the interview and could thus have impacted the reliability of the results.

Use was made of field workers that could speak the respective languages of the respondents, as English was mostly the second language of the respondents. Field workers from certain residential areas were chosen for more convenience, more control in obtaining feedback and because it was less costly to administer the questionnaire. The field workers were briefed prior to the interviews on how to conduct the interview and the intention of the questions.

5.3 Validity and reliability

Content validity was ensured as the content of the open-ended questions was based on the literature study of the eight management functions. A pilot study was conducted with ten spaza shops to ensure that the questionnaire was worded correctly and to test reliability. Field workers could explain the open-ended questions to respondents in their own language and further increase the reliability of the results.

5.4 Data analysis

The completed questionnaires were checked for completeness and then allocated a number. As respondents gave different responses in the open-ended questions, data sheets were designed with new categories added as data capturing took place. It was difficult to categorise the responses as respondents had many different views on what was asked. In spite of this the results are meaningful as they captured the real views on how they execute the management functions. The results of the questionnaires were captured in an EXCEL spreadsheet. Data capturing was a lengthy process as categories were continuously refined to make the data analysis more manageable. The 56 respondents gave many different responses and expressed their views in poor English which required further refinement of categories. The descriptive results were analysed by calculating the frequency of responses and presented in terms of percentages in tables or figures.

5.5 Limitations

The sample would have been more representative if spaza shops in other provinces in the country had been included in the study, but this was impossible due to time constraints and the high costs involved. It would have been interesting to compare the various business operations skills levels of respondents in the different provinces. The researcher had to rely on the integrity of the fieldworkers in completing the questionnaires.


6 Results

6.1 Biographical data

The results of the biographical data can be seen in Table 2.

As can be seen in Table 2, no respondents were under 25 years of age. The sample comprised more males than females. Their qualifications vary from as low as Grade 4 to an Honours degree. One respondent had never attended school.

All respondents operate as sole traders. Most businesses had been in existence for ten years or less. Some respondents had no employees, just the owner. Previous working experience ranged from: Teaching 4 per cent, protection services 4 per cent; mechanical engineering 12 per cent; business 4 per cent; administration 10 per cent; sales and marketing 30 per cent; cashier 8 per cent; nursing 6 per cent; Building 2 per cent; transport 2 per cent; domestic workers 6 per cent, upholstery 2 per cent and 10 per cent had no experience.

The reasons given why they started their businesses are: no shop in area (15 per cent); business reasons such as retrenchment, retirement, business closure, and being medically unfit for work (19 per cent); personal reasons such as divorce and no job satisfaction (4 per cent); needed money to make a living (14 per cent); inherited family business (8 per cent); had money, experience, saw an opportunity (12 per cent); to have independence and achieve goals (4 per cent); and unem-ployment (24 per cent). Fifty seven per cent of the sample grew up in a family business environment where a family member like an uncle or parents had a business. Only 39 per cent of these respondents had worked in the family business.

6.2 Management functions

6.2.1 General management

Seventy five per cent of respondents plan daily, while there was an even number of respondents that never or occasionally plan. Eighty two per cent of respondents daily check whether their stock sold, matches their cash received. Ninety eight per cent of respondents arrange their stock to be eye catching (94 per cent); for the display inside to be visible from the outside (2 per cent), and for easy customer access (2 per cent). Respondents speak the following languages when they serve their customers: English (36 per cent); Afrikaans (22 per cent); Xhosa (34 per cent); Zulu, Sotho, Somali (2 per cent each) and Setswana and Swahili (1 per cent each). As can be seen the majority of respondents have good communication skills and speak two languages, namely English and another language.

6.2.2 Human resources

Twenty one per cent of the respondents do not employ staff. Sixty one per cent of respondents who have employees, have employment requirements as can be seen in Figure 1.



Fifty seven per cent of the employees have specific jobs such as packing shelves (40 per cent); cleaning (12 per cent), and serving customers (48 per cent).

Eighty six per cent allows their staff to make decisions as shown in Table 3.



Table 3 indicates that staff mostly makes stock decisions related to which stock or the quantity of it to buy. Table 4 indicates the percentage of staff that were trained and motivated.

Table 4 indicates that less that half of the respondents train their staff, while nearly two thirds motivate staff. Table 5 shows how respondents train and motivate staff to sell more.

On-the-job training is regarded as the most important way of training staff and about half of the respondents give monetary incentives as a motivator to sell more. As indicated in Table 6 sixty one per cent of respondents delegate some tasks to staff.

Respondents delegate physical minor in-store tasks such as packing shelves and cleaning to staff, but few important tasks such as bookkeeping and counting daily money.

6.2.3 Finance

Table 7 shows where respondents obtain funding to start their spaza shops.

Some respondents used more than one main funding source to start their business. Besides using their own funding, twenty per cent had to also obtain a loan to start their business from: ABSA bank (9 per cent); Standard bank (46 per cent); Unibank (9 per cent); People's bank (9 per cent); Business Partners (18 per cent), and the Step-up program (9 per cent).

Seventy five per cent of the respondents plan their spending, with 20 per cent never or 5 per cent sometimes planning their spending. Two per cent of respondents let their budget dictate what to use their profits for, while others use their profits for: savings (33 per cent); paying business expenses (8 per cent); paying house-hold expenses (27 per cent); re-investing in business (5 per cent); bond repayments (3 per cent); buying stock (16 per cent), and paying loans (6 per cent).

Eighty two per cent of respondents indicated that they do save money, while 11 per cent never or 7 per cent sometimes save money. Eighty six per cent of respondents keep sales records, using the methods indicated in Table 8.

Eighty two per cent of respondents lose money due to stock problems. These problems include: theft (29 per cent); being out of stock (4 per cent); late stock delivery (2 per cent); perishable products (57 per cent) and 8 per cent did not specify their stock problems.

6.2.4 Marketing

Seventy nine per cent of customers are from the community and the remainder can be classified as the general public. Ninety five per cent of customers are regular customers. The customers are aware of the business through: word-of-mouth advertising (32 per cent); advertisements on notice boards (19 per cent); advertisements in free papers (21 per cent); advertisements on Coke truck (2 per cent); posters (2 per cent): pamphlets (6 per cent); the owner's personality (3 per cent); being an established business (5 per cent); and the visibility of the business (10 per cent).

Respondents advertise by means of: a notice board (29 per cent); specials on pamphlets (23 per cent); posters (11 per cent); signage of name of shop (6 per cent); visibility of shop (2 per cent); word-of-mouth (8 per cent); greeting passers-by (4 per cent); product display (4 per cent) and business cards (2 per cent). Eleven per cent of spaza shop owners do not use any means of advertising.

Fifty seven per cent of respondents have specials or give discount. Fourteen per cent only sometimes give discount, while twenty nine per cent never give discount or have specials. Their business hours vary con-siderably, from 05:00 to 22:00, with the majority having a 12-hour day, working seven days a week. The business hours categories are available on request.

6.2.5 Purchasing

All respondents obtain their products from wholesalers. Thirty nine per cent of respon-dents always use the same supplier, while the remainder buy from the supplier with the lowest price. Forty one per cent of respondent receive credit from the suppliers. The various periods credit is given for are: 2 days (4 per cent); 7 days (35 per cent); 14 days (15 per cent); 1 month (34 per cent); 6 months (8 per cent), and one year (4 per cent).

The 2-days credit was given for purchasing bread. It could not be established for what one-year credit was obtained. Fifty two per cent buys only stock that customers demand or request, or stock which sells quickly (46 per cent), with only 2 per cent buying a variety of stock. How often respondents buy stock is shown in Figure 2.



Respondents buy stock weekly, two weekly or when stock levels are low. The amount of stock that respondents buy depends on various factors as outlined in Table 9.

Seventy three per cent of respondents use their own transport to get the stock to their shop, while some stock is delivered by suppliers (8 per cent), hired transport (5 per cent); taxi (3 per cent), bus (8 per cent), or family transport (3 per cent).

6.2.6 Operations management

Fourteen per cent of respondents also offer take-aways or bake bread. The time to make the food varies from 20 minutes to four hours. The food that takes long to make is normally only available at lunchtime. Respondents use kitchen appliances such as stoves and pots (30 per cent); microwave (20 per cent), deep fryers (10 per cent); primus stove (10 per cent), bakery equipment (20 per cent) and a blowlamp (10 per cent). They bought the appliances new (63 per cent) or second hand (13 per cent) or use their home appliances (24 per cent). They use their profits to buy the appliances (50 per cent) or obtain a loan (33 per cent) or borrow from their husbands (17 per cent).

6.2.7 Information management

Fifty seven per cent of respondents have a business plan. This does not mean a traditional business plan, but an idea of their future expansion plans. Eighty four per cent of respondents read information sources indicated in Table 10.

Other media included: TV advertisements (1 per cent); Catalogues (1 per cent); and whatever reading materials could be found (2 per cent). Table 10 shows respondents favoured reading newspapers (88 per cent). Respondents have knowledge of customers' preferences as they:

  • record it in a book (4 per cent);
  • obtain information from customers (32 per cent);
  • notice what is selling (38 per cent); and
  • notice the decrease in stock levels (26 per cent).

Seventy seven per cent of respondents give advice to their customers as indicated in Table 11.

Advice is given only when asked for in the interest of the customers.

6.2.8 Public relations

Three per cent of respondents did not know why customers buy from them. The other respondents indicated customers buy from them because of: cheap prices (28 per cent); good service (38 per cent); personality such as friendliness and fairness (18 per cent); only shop in area (6 per cent), and other, e.g. having the right stock, good quality, give credit, open early and have qualified staff (7 per cent).

Returns are handled either by refunding customers (20 per cent) or exchanging the product (58 per cent) or by solving the problem (14 per cent) which could be either refunding or exchanging, depending on the type of returns. Eight per cent of respondents do not accept any returns.


7 Conclusions

7.1 Biographical data

Nearly half of the respondents have a Grade 12 qualification and are 36 to 55 years of age. Few respondents are in the 26 to 35 years category. It seems that they probably have furthered their education and/or found employment. More males than females in this sample started spaza shops. Regardless of the type of previous working experience, respondents start spaza shops, with some even having no working experience whatsoever. There are many spaza shops across all the township areas, with the majority in the more densely populated areas. As they are informal businesses, they favour sole proprietorship. The majority of respondents had spaza shops for less than ten years. The number of spaza shops has nearly doubled in the last five years (52 per cent versus 32 per cent). Spaza shops are not a new business opportunity as two of the shops have been in operation for more than 25 years. The majority (79 per cent) of spaza shops employ staff. The spaza shop owners have entrepreneurial background as they had someone in the family that had a business (57 per cent), and some (39 per cent) even worked in the business. Nearly two thirds of respondents are necessity entrepreneurs as they were forced to start the spaza shops, mostly due to lack of income. The other third are opportunity entrepreneurs (only shop in area, had money and wanted to be independent).

7.2 Functional activities

7.2.1 General management

Literature and the empirical findings confirm that the majority of respondents engage in daily planning and plan their monthly expenses (household and business) but do not have a budget. All spaza shop owners are conversant in English and either Xhosa or Afrikaans and can thus contrary to literature findings, serve their customers in a language they can understand. Some can even speak more than two languages.

Literature indicated that spaza shops do mostly not need a licence to trade, lack a safe and protected stock storage space and are often victims of break-ins, property theft, vandalism and physical attacks. They buy in small quantities due to lack of security and crime.

7.2.2 Human resources

Literature concurs with the empirical findings that spaza shops are a major source of employment and they rely on manual labour such as packing shelves, cleaning and serving customers. Spaza shop owners favour on-the-job training by showing staff how to execute jobs such as working the cash register.

7.2.3 Purchasing

Literature and the empirical findings confirm that spaza shops frequently buy either weekly or two weekly, mostly from wholesalers although retailers are also used, depending on who has the best price at the time. Furthermore, they buy from suppliers selling the brands customers prefer. The empirical findings contradict literature findings by the fact that spaza shops buy in small quantities as they lack storage space. Only 2 per cent of respondents regard storage space as a factor that determines the amount of stock bought. Forty one per cent of respondents indicated they receive credit, whereas literature indicated that they mostly receive no suppliers' credit. Contrary to literature findings, the majority of respondents use their own vehicle for transport with only a few relying on taxis or hire transport.

7.2.4 Marketing

Literature concurs with empirical findings that regular customers of spaza shops are mostly from the community (township residents). Business hours are very long, allowing for night shopping. Customers are mostly aware of the business through word-of-mouth. Marketing communication is either by notice boards or pamphlets.

7.2.5 Finance

Literature and empirical findings confirm that spaza shop owners received no formal support to start their businesses and mostly use their savings with their biggest expense being business expenses. The empirical findings find that respondents regard household expenses as big an expense as business expenses. The empirical findings concur with the literature that they do not keep records, except for purchases and sales.

7.2.6 Operations management

Literature concurs with empirical findings that operations are limited to selling take-aways. The empirical findings also indicated that besides the take-aways respondents also bake bread.

7.2.7 Information management

Literature and empirical findings confirm that they keep abreast of product and supplier information by reading newspapers. They use printed media such as newspapers or magazines to obtain information. The empirical findings contradict the literature study that indicated spaza shop owners prefer to watch television to obtain information.

7.2.8 Public relations

Literature concurs with empirical findings that spaza shops need to be better than others with respect to their offerings of service and products. They have sound customer relationships by accepting returns or exchanging them where possible.

In the next section recommendations and management implications for spaza shop owners are given.


8 Managerial implications for spaza shops

Spaza shops have become a popular choice as a way to enter the business market. It can be an alternative opportunity to matriculants who cannot find employment or do not have money to further their studies, to become independent and earn money. This is in line with government's policy of encouraging the development of the SMME sector as it creates employment opportunities. Contrary to findings in the Global Entrepreneurial Monitor report previous working experience is not essential, but a basic education level of Grade 10 is recommended. Growing up in an entrepreneurial environment is beneficial. Spaza shop owners should seek to grow and better their standard of living while at the same improving the lives of the community. Savings can assist in times of need, or give them the opportunity to expand. Table 12 indicates how spaza shops should or could engage in the management functions.

Spaza shop owners should not neglect the purchasing-, information- and financial function. Information is knowledge, pur-chasing systems can increase profits and handling their financial affairs as a business, not as part of their personal finances can lead to possible expansion. Finally, spaza shops owners could provide employment oppor-tunities and so relieve unemployment in South Africa if managing their spazas as efficiently and effectively as any other business. Previous entrepreneurial experience gained from working in a family business or growing up in an entrepreneurial environment could assist spaza shop owners in knowing how to apply the management functions within their spaza shops.



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Accepted July 2010

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