Top brands weathering multiple storms
For most countries, the early part of 2020 was eventful enough. Hong Kong and France saw significant protests. The United States rolled only the third impeachment trial in its history. Brexit continued to roil Europe, and worrisome slowing hit the Chinese economy.
In South Africa, however, the situation was even more dramatic. The nation finished off 2019 on a sporting high note with its beloved Springboks winning the Rugby World Cup. After that, however, the mood quickly turned sour. Frustrated by slow reform and stagnant growth, all of the major rating services downgraded South African government debt to junk status.
This tumbled the country into a technical and real recession. In the final quarter of 2019, GDP slid 1.4 percent, after falling .8 percent in the previous quarter. Unemployment rose to around 30 percent (though with the bulk of SA’s population under 40, its youth unemployment rate usually ranks among the highest in the world). And a recent survey by Kantar found that 70 percent of the population could be classified as an “emerging market,” earning R5,000 a month or less.
And all that was before COVID-19.
On the plus side, South Africa entered the pandemic crisis considerably better prepared than many nations. Its businesses were already in contraction mode, cutting costs in order to weather the recession storm. In addition, the country regularly deals with epidemic disease, notably HIV and tuberculosis, so it already had a testing and contact-tracing infrastructure in place, where other nations had to start from scratch.
Nonetheless, the lockdown hit the country hard, accelerating negative trends already in place. The resource-heavy JSE managed to stay afloat, but other sectors were heavily impacted, and especially small- and medium-sized businesses. The country’s emerging market class was hit especially hard, with food insecurity rising and social distancing nearly impossible for those compelled to live close together.
For brands the effect was profound. With people restricted to their homes except for essential trips, consumer brands were hit hard. Pre-COVID-19, South Africans were some of the world’s most avid in-person shoppers, with many flocking to supermarkets and bulk-buying stores. The prolonged lockdown has changed these habits, turning shopping into a well-planned march with minimal browsing and impulse buying, and a pivot towards e-commerce. This has forced brands to innovate to find more convenient ways to get their products in their customers’ hands.
By the numbers
Not surprisingly, the BrandZ™ Top 30 Most Valuable South African Brands did not have a banner year, falling a disappointing if predictable 20 percent year-over-year.
The headline, however, is that First National Bank, which has invested heavily in improving its digital and brand experiences, has overtaken the top spot in the ranking for the first time. FNB scores extremely well on the major measures of brand equity, with consumers seeing it as a well-recognized brand that meets their functional needs in a differentiated way. While it experienced a drop in relative value, much of that can be explained by the overall decline in value of South African banks as a result of the ongoing crisis.
FNB’s ascent to the top of the ranking echoes what decades of global data have demonstrated: that strong brands are more resilient during downturns and return to growth faster than average. After the 2008/2009 financial crisis, for example, strong brands grew nine times as fast as the average brand.
Data from this year’s ranking also supports this. Clicks, Capitec, and Pick n Pay all score relatively well across the key metrics of Meaning, Difference, and Salience. Clicks is the most Meaningful top South African brand, and it was also the only brand in the Top 30 to grow its value. Innovation-focused Capitec scores well across all metrics and was essentially flat year-over-year in a category that plunged considerably. Pick n Pay is quite Meaningful, Different, and the most Salient of brands in the rankings—all of which helped to contribute to a third-best performance in terms of brand value of the Top 30.
Finally, it’s worth mentioning that this year Woolworths’ grocery experience was found by Kantar’s CX+ Retail Ranking to have the very best customer experience of any retailer in the world. It did fall 10 percent, but is experiencing headwinds due to an investment in Australia. It nonetheless rose 2 spots in the ranking to #9.
The equity deficit
Overall, however, South African brands did not fare well in the past year. To understand why, it’s time to have a frank and honest discussion about pre-COVID brand building in South Africa. BrandZ™ rankings are based on two factors. The first is the financial value of the brand. The second is the value that the brand itself contributes to that. As a result, many beloved South African brands, like KOO, and ones that offer a terrific brand experience, like Takealot, are simply too small on a financial basis to make the ranking.
Many top South African brands have instead chosen to grow their value by acquisition and expanding their operations rather than innovating to provide a better brand experience. Nearly 60 percent of brands come from categories like banks, insurance, and telecom providers, which are for the most part not well differentiated nor loved in their home market.
As a result, the average Brand Contribution score (a measure of how much the brand itself contributes to the overall brand value) for a top 30 brand in South Africa is only a 2 out of 5. Most peer countries do much better. India has an average Brand Contribution score of 3.4, while Indonesia has a 3.2. Only 4 brands in the SA Top 30 – Nando’s, Woolworths, Castle, and Flying Fish — score 4 or 5. By comparison, 17 of the top 30 Indonesian brands score that high. The top 30 South African brands, while financially valuable, are not always the most Meaningful and Different of brands.
Top South African brands do score well on one measure of brand equity: Salience. Everyone in the country knows them. However, Salience does not by itself build a much-loved brand with a differentiated offering that commands a premium from loyal customers. As a result, top South African brands are weak on brand equity, and as a result you wouldn’t expect many of them to be particularly resilient in the face of adverse economic conditions. They are performing as their relative equity would suggest.
It’s also worth pointing out that the evaluation period for these brands came before the full onset of the pandemic. Since then, many brands have been prodded into providing better and more convenient experiences. Retailers are adding click-and-collect services, banks are going full steam ahead with digital experiences, and everyone is striving for quick delivery in one way or another. While it may seem callous to say so, necessity can be the mother of innovation, and times of adversity are also times of opportunity.
So, where to innovate? Given that in normal times South African consumers are often stressed for time, anything that can make shopping experiences easier or more convenient would likely be welcome. Obviously, with the rapid adoption of online ordering during the lockdown, brands like Takealot are poised for growth.
Traditional retailers need not be left out. Shoprite had a fascinating innovation with Usave, a small, mobile, truck-trailer store that is bringing goods to communities so their residents don’t need to use public transportation to shop. So, while it may seem tempting to duck under our shells and hold off on brand investment, a downturn can also be an excellent time to rethink, retool, and figure out new avenues for growth.
The promise of innovation
Nearly every country will remember 2020 as a historic year, and South Africa should be no exception. The nation and its brands were already struggling, and the global pandemic is only piling on more uncertainty. However, the path forward is clear. In a downturn, brands are always tempted to cut prices and customer service. But research shows that even the emerging market is not looking for the lowest price so much as the best value. Brand can be a powerful marker of quality and trust. As consumers have fewer rands to spend, they will want to get the most they can in return.
Where are South African brands headed next? It’s hard to say, but early indications are that they are being forced to change in ways that should benefit them in the future. Those that adopt proven, new ways of doing business will likely survive, while those that remain stuck in the past may live to regret it.