Food and building-material retailer Spar is eyeing turnover of up to 3% to come from online and delivery services in SA in the medium term as it ramps up the rollout to more stores this year.
It has been testing the SPAR2U online and delivery platform at a few stores, with “positive reviews” and “a large number of stores are preparing to launch” this year, said Spar CEO Brett Botten.
Initially Spar targeted 100 stores by the end of the year and “we are on track to get to that number but with our network of stores we will get to 150 to 200 stores”, he said.
Asked about the group’s growth targets, Botten said “it’s hard for us to say. If you look at the numbers during Covid [we] saw significant growth, but it has tailed off a bit depending on who you talk to and the market being targeted”.
“This solution will not be prominent in the lower LSM but in the upper segment. But I think the number is somewhere between 1% and 3% of turnover.”
Spar SA turnover increased by 7.7% to R43.8bn for the six months to March. Group turnover rose 5.2% to R67.6bn.
Spar, which also has a presence in Sri Lanka, Poland, Ireland and Switzerland, has partnered with logistics company Skynet to assist with deliveries in SA.
The company is the last large grocery group to enter the booming online and delivery market.
Botten said: “We watched what was happening. Because of our independent retailer model we wanted to build what we called the shared-value ecosystem involving our retailers. It was a much more complex process. It will be slightly different to the other on- demand shopping solutions. Every single store will also have a unique range. There will be a standard range but it will be expanded according to those stores’ unique offerings.”
Chris Reddy, portfolio manager at All Weather Capital, said the slow rollout of the online offering has been “disappointing”.
“Given the pressure of higher fuel costs, coupled with the convenience of online shopping, it is a pity that they are giving up market share to their peers. The rollout was complicated given the independent retailer model,” he said.
Chris Gilmour, independent investment analyst with Salmour Research, said: “Frankly, online and home delivery is a loss leader for most companies. It is a means to an end, not an end in itself. It is expensive to run, which is why both Shoprite and Pick n Pay have effectively outsourced it to RTT and Takealot. Not sure it will make a huge difference to Spar.”
Spar, which also owns the Build it brand, has about 1,000 stores, of which 45 are owned by the group.
Given the pressure of higher fuel costs, coupled with the convenience of online shopping, it is a pity that they are giving up market share to their peers. The rollout was complicated given the independent retailer model
— Chris Reddy, portfolio manager at All Weather Capital
Botten said the group has no plans to increase the number of company-owned stores.
“We believe strongly in the strength of independent retail. But at the same time it is a strategy for us to own a small number of stores across all our divisions, because we use those stores to pilot and test new concepts.
“[It] also gives us an opportunity to have our ear close to the ground so that we have a good feel of what’s going on at retail so when we talk to [Spar] retailers to give them leadership support and advice as part of our model, we kind of have an inside track when we talk to them.”
Spar Group’s operating profit increased by 7.1% to R1.8bn. The Southern Africa businesses delivered a strong performance while profits from operations outside SA came under pressure due to increased labour and energy costs, the group said. While loss-making, the Polish business is showing improvement, it said in a statement.
Gilmour described Spar’s interim numbers as a “fairly pedestrian performance, especially top line in SA. Strip out the big rise in liquor sales from the depressed base of the previous year and it really wasn’t strong.”
“Poland is the main area of concern. It has taken at least two years to get there and they’re still making losses. Look, I like Poland and in the normal course of events it would have been a good acquisition, but I am now very concerned what happens with the war in neighbouring Ukraine,” said Gilmour.
In SA, consumers are facing high increases in fuel and food costs and Reddy said “there is a risk that the consumer shops down to more value stores as disposable incomes reduce given the pressure of higher fuel, food and interest rates”.
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