SMALLER BASKETS, TIGHTER MARGINS: RETAILERS FEEL THE SQUEEZE AS CONSUMERS CUT BACK

Botswana’s retail sector is facing a more cautious consumer, with households still spending but having less room to spend and a sharper focus on value.

Weak economic growth, elevated unemployment and inflationary pressures are squeezing household purchasing power. For retailers, the impact is increasingly visible in smaller baskets, weaker demand for discretionary goods and tighter margins as businesses compete for increasingly price-conscious customers while absorbing higher costs.

The outlook for household spending points to further pressure. BMI Fitch Solutions forecasts real household spending to contract by 1.0 percent year-on-year in 2026 before recovering modestly by 1.3 percent in 2027.

The deterioration in the consumer outlook is being driven by weakness in the diamond sector and structural unemployment, which reached 27.6 percent in 2024, while youth unemployment exceeded 30 percent. Inflationary risks linked to the US-Iran conflict are expected to add to the pressure.

Global energy price spikes are expected to push domestic inflation to an average of 7.6 percent in 2026, up sharply from 2.6 percent in 2025, further eroding household purchasing power. Tight monetary policy in an elevated inflation environment is also expected to constrain consumption through credit, with borrowing costs remaining higher for longer.

“Consumers will likely continue their cautious approach to spending, shifting further away from durable goods towards essential services. Thus, consumers will seek out value-oriented options and will become increasingly selective in their purchasing decisions throughout 2026,” the firm said.

The pressure is already becoming visible across the retail market, with softer consumer spending showing up in margin compression, weaker like-for-like sales, lower profitability and changes in what consumers buy.

Choppies Enterprises increased revenue by 8.6 percent to P5.1 billion for the six months ended December 2025, while retail sales grew 8.9 percent, supported by the opening of 25 new stores and volume growth.

However, the stronger top line did not translate into higher profitability. Operating profit fell 20 percent to P152 million, while profit from continuing operations declined 33 percent to P77 million.

Management attributed the pressure primarily to the global diamond-market slump, which reduced consumer liquidity in Botswana. The July 2025 pula devaluation added P64 million in costs that could not be passed on to consumers, while inflationary costs, the implementation of a living wage and aggressive discounting by competitors added further pressure.

Sefalana also reported record top-line growth across the region, with annual revenue turnover rising 9 percent to P12 billion. But Botswana, which normally generates around two-thirds of group earnings, experienced a significant downturn.

The company’s tax contribution from Botswana fell 40 percent, from P550 million in the previous period to P331 million for the year ended April 26, 2026. Botswana’s contribution to group profit before tax fell from 62 percent to 56 percent, with P186 million in PBT generated locally, down from P339 million.

The decline was attributed to the diamond-sector downturn, which affected disposable incomes and consumer spending.

Sefcash Botswana’s like-for-like sales declined by 1 percent, indicating weakness in the existing Botswana retail base despite broader group sales growth. The 8 percent depreciation of the pula against the South African rand in July 2025 increased the cost of imported goods.

Sefalana absorbed much of the increase rather than fully passing it on to consumers, resulting in the Sefcash Botswana profit margin falling from 5.4 percent to 4.0 percent.

Fast-moving consumer goods (FMCG) businesses, which are closely linked to the retail sector, are also facing the same pressures.

CA&S Holdings said that although Botswana remained its largest and most significant regional market, the segment faced heavy headwinds that weighed directly on the parent company’s consolidated growth.

The company recorded an 8.7 percent decline in Botswana revenue and an 11.9 percent fall in earnings before interest, taxes, depreciation and amortisation (EBITDA), with Botswana accounting for 42 percent of group revenue in the six months to June.

CA&S linked the weakness in Botswana to the deterioration in the mined-diamond industry, which has filtered through to consumer spending, as well as the depreciation of the pula.

With Botswana historically accounting for nearly half of the group’s business, management has been trying to reduce its reliance on the country. Its long-term strategy aims to lower Botswana’s share of group revenue to roughly 25 percent by aggressively acquiring high-growth retail and digital assets across Namibia, South Africa and East Africa.

The changing consumer environment is also evident in day-to-day shopping behaviour.

Sefalana Group Managing Director Chandra Chauhan said customer traffic had remained relatively consistent, but consumers were spending less during each visit, resulting in a significant reduction in basket sizes.

“What we have noticed is that the feet have increased. There are more visits to the stores, but the basket size has diminished significantly,” Chauhan said at the recently held Stanbic Bank Corporate & Investment Banking Connect Series 2026.

Consumers, he said, were also changing what they considered value, focusing more on essentials than luxury goods.

Customers were increasingly opting for ready-made meals from Sefalana’s delis, which offered a cheaper alternative while also avoiding the electricity costs associated with cooking at home.

Chauhan said Sefalana was responding with value-oriented product strategies, including combination packages and promotional deals to maintain store traffic, even where margins on those products were negligible.

“If we do not have the combos, or if we do not have a package deal, we do not have any feet in the store,” he said, adding that consumers were increasingly choosing the cheapest products advertised in promotional leaflets.

The squeeze is also changing how retailers manage their balance sheets.

Sefalana says it is implementing cost-containment measures and moving to zero-based budgeting, scrutinising operational expenses line by line rather than relying on historical spending patterns.

The company has indefinitely paused $350 million in pre-approved capital expenditure projects and halted new store rollouts after previously adding six to seven stores annually. It is instead focusing on cash preservation, operational efficiency and exploring local food and beverage production to reduce import dependence.

Rather than buying bulk inventory ahead of anticipated price increases — a traditional hedge against inflation — Chauhan said retailers were increasingly prioritising liquidity.

With interest earned on cash currently offering better returns than thin retail margins, holding money in the bank can make more financial sense than increasing inventory.

“We have to look at the offset between leaving the money in the bank and earning interest, or buying the stock and selling it at a 5-6 percent margin. We earn more money keeping the money in the bank than we do selling your daily consumer needs,” Chauhan said.

Workforce strategies have also adjusted, with Sefalana scaling back hiring from an average of 1,000 new jobs annually to just 100 in the 2025-2026 financial year.

For businesses operating in this environment, the challenge is increasingly about demonstrating value rather than assuming consumers will continue buying in the same way.

Fr adreck Shoko, Global Head of Consumer Markets at Standard Bank Group, said businesses facing difficult economic conditions needed to remain focused on the value they offered consumers.

Products must meet a genuine, sustainable need and do so efficiently and accessibly, he said.

“It has to solve a genuine need, and that need has to be a sustainable need,” Shoko said.

With consumers becoming more price-conscious, businesses must find a balance between cheap and premium products, weighing affordability against quality.

Shoko also said difficult conditions should not automatically stop investment, but spending should be disciplined and focused on protecting the customer base and keeping the business relevant.

Adaptability and agility will also be critical as consumer needs and the economic environment change.

For retailers, Shoko said this meant improving operational efficiency through clear and manageable stock-keeping units (SKUs), better sourcing and efficient returns processes to prevent operational bottlenecks.

Convenience is another consideration, he said, but it must make economic sense for consumers. Cost-effective distribution models, including online delivery channels, could reduce the total cost of accessing goods without significantly increasing business overheads.