Spar will be launching its delivery platform for retailers in northern Johannesburg by the end of March as it faces “aggressive” competition and weak local grocery sales growth.
Spar’s wholesale grocery business reported sales growth of 3.7% in the 18 weeks to January 29, excluding alcohol, against internally measured price inflation of 4.4%. This means the volume of food and grocery sales dropped compared with the previous period with the increase explained only by rising prices.
By contrast, Checkers’ sales for the six months to end-January were up about 11%, suggesting Checkers is not only outperforming Spar, but could be stealing some market share from Spar.
Spar, which has stores in residential areas and offers consumers convenience, is facing pressure from grocery delivery apps such as Pick n Pay’s Asap and Checkers' Sixty60 that usually deliver groceries within an hour and undermine Spar’s business model.
Spar, which is a wholesaler selling to independent Spar stores, said interest levels from Spar retailers to use the new e-commerce platform remain high. “This will enhance the group’s ability to assist retailers in driving improved consumer service and engagement.” They have piloted the platform, the update said.
Spar said trading conditions in SA remained challenging because of high unemployment, constrained consumers, and “aggressive competitors”.
Sales were negatively affected by the fact that 28 Spar stores remained closed after being damaged in the KwaZulu-Natal riots. It is expected that 20 stores will open in 2022, but eight stores will never reopen.
Spar CEO Brett Botten told shareholders at the Tuesday AGM that plans for the SA business included upgrading stores, as that drove growth, as well as a focus on promotions and a continued focus on expanding private-label products.
These are in-house brands that are usually cheaper and can drive loyalty. In 2020, Spar bought food producer Monteagle that produces private label goods as part of its strategy to increase private label sales.
Spar saw a 55.8% increase in Tops’ Liquor sales showing just how much four-day sale restrictions in 2020 and alcohol bans had hurt business. It described this spike in alcohol sales as “abnormally high growth”.
Growth in Build It hardware sales slowed, in line with muted building sales recorded by Pepkor's Building Company, Massmart's Builders and Cashbuild. This shows the consumer boom in home improvement spending that started during lockdown has ended.
However, Build It sales growth was still 27.8% higher than 2020.
Overall group turnover increased by 5.8% to R45.5bn and Spar said this was thanks to its diverse model where is invested in Switzerland, Ireland, Poland and SA.
Spar’s business in Switzerland recorded extraordinary growth in lockdown when Swiss residents were subject to border restrictions and unable to shop in nearby Germany and France. It only thus increased 1.8% off a high sales base.
Sales in Poland increased almost 12% but the business that was bought out of business rescue in 2019, is still loss making.
“We remain challenged in Poland,” said Botten. In Poland, Spar needs independent retailers to buy 40% of their goods from it to break even, but levels are at 30%. It is negotiating new contracts with retailers to drive more sales from them.
Spar’s share price rose 2.24% to R174,34 in midmorning trade.
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