Almost a third of retailers in Poland that buy food from wholesaler Spar quit their contracts in response to new terms that require them to buy about 40% of their goods from Spar.
The wholesaler issued a voluntary update on its turnaround plans for the East European country after reporting earlier in the Polish media on the loss of some of the stores it supplies in Poland.
Spar bought distributor Piotr i Paweł out of business rescue for €1 in 2019, after which it bought the Polish Spar wholesale licence when the previous supplier found itself in trouble. It has since been trying to turn unprofitable operations around.
In March, the wholesaler told the market it was renegotiating its contracts with Polish retailers and including new terms that require them to buy about 40% of their goods from Spar.
Initially, Spar management said it expected the Polish business to break even by 2022. The company has been upfront about the challenges in Poland and the need to address them.
Polish revenue accounts for 1.9% of the group’s total, but its debt equals almost 16% of the JSE-listed entity’s debt.
Spar issued notices to 91 of the 208 stores that bought, on average, 25% of their products from the wholesaler, informing them of the new required level.
In response, 58 said they would no longer work with Spar. The bulk of these are in the south of the country.
Spar said it would be in a better position working with outlets that bought sufficient goods from it rather than losing money supplying those that did not. Stores in the country’s north buy about 65% of their products from Spar.
The company is also closing its Warsaw warehouse, which will cut costs and leave it with two distribution centres: one in the north and one in the south. It has said further extensions to the southern distribution centre would enable it to increase the range of goods and services offered there.
The market reacted positively to the news, first reported in the Polish press, and closed 4.1% higher at R153.13 on Friday.
Spar’s Poland chair Wayne Hodson told Polish media a week ago the upgrade of the southern distribution centre will enable it to increase the number of products it supplies to stores from about 6,500 to between 10,000 and 11,000.
One of the difficulties Spar faced when it took over in Poland in 2019 was the collapse of the local wholesaler. By the time it got things back in order its independent retailers had found new suppliers.
Spar has enjoyed success abroad in Switzerland and Ireland, where it earns more than a third of its revenue. Its Polish and Swiss business models are similar to its wholesale business model in SA.
When Covid-19 and border closures slowed down Spar’s turnaround plan, it sent members of its SA management to Poland in 2021 as borders opened there, as it wanted to have a presence in the country.
Earlier this year, Irish bankers said they were not keen to increase Spar’s 2.75 X debt to ebitda covenant, a ratio used by lenders to measure if debtors can meet repayment obligations.
In response, Spar halved its dividend payout ratio for the next two financial years to fund a software upgrade at its SA business and also to have a small amount of capital to fund its expansion in Poland, where it is opening stores at fuel forecourts.
Hodson told Polish media the company still plans to open about 40 new stores a year in the Eastern Europe country.
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