With wholesaler Spar planning to leave Poland as soon as it can sell the business, it looks as though Switzerland will be next.
The wholesale business in Switzerland makes up less than 3% of that country’s retail market, posts low returns and has been struggling since the pandemic ended and borders opened. Locals do weekly or monthly shops over the border in Austria and Germany where groceries can be up to 60% cheaper.
The group also pays interest on its R2.9bn debt in Switzerland.
The Swiss division has an operating margin of about 1.5%-2% which is way below the cost of its capital, as All Weather Capital CIO Shane Watkins pointed out during Spar’s investor call on Thursday.
“Your cost of capital is too high to be in a business with margins that are so low. I just wonder whether you shouldn’t be looking at an exit of Switzerland as well,” said Watkins.
Spar group chair Mike Bosman said: “I think once we’ve moved past Poland, we’re going to have to look at what we can do in Switzerland. Because the idea of operating below the weighted average cost of capital makes no sense to any of us.”
Bosman appeared to impress the market by being willing to move out of Poland and hinting at a possible exit from Switzerland.
The share price closed up 2.9% at R116.28 on Friday after rising 11.25% on Thursday.
The Swiss Spar business makes less than R300m a year after tax and made an operating profit of R110m in the six months to end-March. That business has instituted salary freezes as sales in the 11 months to end-August dropped 3.4%. In 2022, Nielsen reported to Spar that its market share grew to 2.9% from 2.6%.
A source told Business Day many of the Spar convenience stores are in poor locations in Switzerland. As is the case in Poland, Spar may lack the scale needed to be profitable in Switzerland.
Spar sells to 2,509 stores in SA and surrounds, and to more than 1,400 outlets in Ireland and Southwest England. It supplies 372 stores in Switzerland and only 180 in Poland.
In Switzerland, it serves retailers under the Spar and Maxi fuel brands, and has 11 TopCC cash and carry outlets which sell to the culinary-focused wholesale grocery market, the third largest wholesale business in the country.
Overseas forays have not come cheap with Spar racking up high levels of debt of about R10bn that is mostly held abroad but is guaranteed by its local business. It is looking to reduce this by selling some logistics properties in Switzerland.
It has R1.3bn debt in Poland and has almost R3bn in Ireland.
A decision to leave Poland and Switzerland will allow it to focus on its successful business in Ireland. It will also be able to focus on SA where it faces huge competition from Checkers’ Sixty60 delivery service. In SA, it historically made operating margins of 3% though these are closer to 2% at present.
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