Spar is one of only a handful of South African companies that have excelled overseas, with its results this week showing a strong performance from its operations in Switzerland and Ireland.
These two operations reported double-digit sales and profit growth, while turnover at the group's core South African food business rose 9.2% in the year ended September 30, making it one of the best-performing local retailers as well.
FNB portfolio manager Wayne McCurrie said Spar is one of the very few, along with South African Breweries, Anglo American and Bidvest, that have succeeded offshore.
Protea Capital Management senior analyst Richard Cheesman said Spar delivered “strong results especially driven by the overseas businesses”.
Spar said in its results that in Ireland, the “majority of [outlets] in this market are ideally located neighbourhood stores and have performed strongly”.
It said the Switzerland business “seized the opportunity of changing consumer behaviour, largely influenced by the closure of Swiss borders during the initial lockdown, with locals shopping closer to home and opting for trusted community-based stores over large supermarkets”.
Revenue at the group’s Ireland and Switzerland operations rose 30% and 50% respectively in the second half in rand terms, and Cheesman said the increases for operating profit were 67% and 317% respectively.
“What we find impressive is the success that Spar has had overseas. You can count on one hand the number of retailers that have been successful outside SA,” he said.
They obviously had what people wanted at the right price and people bought a lot.
— Wayne McCurrie, portfolio manager, FNB
Spar’s Polish operation — Piotr i Pawel, in which it acquired an 80% stake in 2019 — is the only blemish. Restructuring of the struggling retailer and wholesaler was disrupted by the pandemic, but it is expected to break even by December next year.
Spar’s performance in Southern Africa was also helped by the location of its stores.
CEO Graham O’Connor said most outlets are in neighbourhood or convenience shopping centres, rather than malls, which customers have tended to avoid during the pandemic.
“We only have a few big stores in malls and those were way down [in terms of sales] and the rest of our stores have performed really strongly, while our coastal neighbourhood shopping centres worked well for us.”
Alec Abraham, a senior equity analyst at Sasfin Wealth, said historically the Spar group “grew out of the corner cafe, which had the best locations in the neighbourhoods”.
“Those cafes over the years converted to Spar stores. One of their competitive advantages they [Spar] have had is that they have had very convenient locations in the neighbourhood. During Covid that competitive advantage has been heightened by the fact that people are shopping more locally and prefer not to drive further out.”
The increase in Spar Group’s South African turnover for the year ended September.
— 9.2 %
McCurrie said Spar’s full-year results show that it “got a very good sales mix during lockdown and people bought more groceries. They obviously had what people wanted at the right price and they had it available on their shelves and people bought a lot,” said McCurrie.
Overall, Spar’s revenue grew 13.5% to R124.3bn, operating profit rose 15.4% to R3.4bn and its dividend per share was up 8.1% to 865c.
Cheesman said locally, Spar has held up well against its competitors, adding that “after Woolworths Food, Spar would be the next best grocery result”.
In the year ended June 30, Woolworths reported that sales at its food division grew 10.7%. It also reported on Thursday in a trading update for the 20 weeks ended November 15 that “Woolworths food remained resilient”, saying sales grew 9% in comparable stores over the latest period.
McCurrie said the performance of Spar's South African operations had been “exceptional”.
“Spar has always been good healthy competition for Woolworths, Checkers and Pick n Pay, but I think this set of results is better than what the other guys are going to do.”
O’Connor, who is stepping down at the end of February after seven years at the helm, and 34 years associated with Spar, said he believed the “business is in a really good space”.
His successor is Brett Botten, who has worked for the group for 25 years.
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