Wholesaler grocery and building materials group Spar plans to double the number of pharmacies under its brand in the next five years to give independents an opportunity to grow in the highly competitive market.
Spar, through franchises, has 150 pharmacies but plans to have 300 by bringing in independent pharmacies into the network.
“Our pharmacy business has largely been built on the back of small, independent pharmacies, and we really see ourselves as a home for small independent pharmacies. We want to be quite aggressive in that space and grow the business a lot faster than we have in the last few years,” said Group CEO Angelo Swartz.
“We are very bullish about our pharmacy business going forward. We have around 150 pharmacies and want to double that number in the next five years.”
The pharmacy industry is dominated by Clicks and Dis-Chem, which are aggressively expanding their footprint across the country.
Shoprite, which has about 140 pharmacies under the Medirite brand with most of those being inside its grocery stores, is also eyeing a sizeable growth in the pharmacy sector.
Swartz said the ongoing expansion by Clicks and Dis-Chem is an indication that there is still space for growth in the market for independent pharmacies.
The days of owning an independent pharmacy have been eroded by the formalisation of that market, but many young pharmacists still want to be their own bosses and I think we can create a home and a platform for them as we’ve done in groceries
“The days of owning an independent pharmacy have been eroded by the formalisation of that market, but many young pharmacists still want to be their own bosses and I think we can create a home and a platform for them as we’ve done in groceries.”
The pharmaceutical business, S Buys Pharmacy at SPAR, continued to deliver double-digit sales growth, delivering 15.0% turnover growth for the period to R838m, increasing its contribution towards Southern Africa turnover from 1.5% to 1.7%.
Spar has 2,550 stores and eight distribution centres in South Africa, Namibia, Botswana, Mozambique, Eswatini and Lesotho, and also operates 1,475 stores and 22 Cash & Carry stores in the UK and Ireland. In Switzerland it has 358 stores and 11 Cash & Carry stores.
This week, Spar reported a decline in earnings for the six months to March, hit by the failed software implementation at its distribution centre in KwaZulu-Natal, competition and weaker trading conditions across its markets in Europe and South Africa. Spar said the SAP software implementation, which started in February 2023, negatively affected gross profit margin because buyers had poor visibility of pricing and subsidies, hindering sensible pricing decisions.
While it is further developing the system to improve pricing visibility, Spar is moving away from SAP to implement an alternative warehouse management system. The failed system has cost Spar more than R1bn in sales as retailers opted to stock for products elsewhere.
Swartz said the company will implement incentives to attract clients back to its wholesale centres.
“I think our retailer loyalty has dipped slightly, even if we exclude KwaZulu-Natal. I do think they found more competitive pricing out there from independent wholesalers. We are urgently looking at how we bring those retailers back to buying from us. Ultimately, we want our retailers to be as successful as possible and our value offering needs to give the platform to do that.”
Southern African operations reported turnover of 4.8% to R49.3bn. The group’s building materials business, Build it, reported a flat wholesale sales performance declining by 0.4% to R4.7bn, which reflects a subdued construction industry, said Spar.
In Switzerland, turnover declined due to competition from large supermarket chains and also macroeconomic environments, while the UK and Ireland delivered a solid trading performance despite both markets continuing to be characterised by a constrained consumer environment — driven by higher living costs, ongoing food price inflation and higher interest rates.
Spar, which is in the process of selling its Poland businesses, is reviewing its Europe operations with Swartz saying selling some of the business will be considered if “we don’t think that we can return on capital in those businesses”.
In Southern Africa, Swartz sees more expansion opportunities as in South Africa in businesses in adjacent categories such as baby and pet goods.
Spar is forging ahead with its plans to have two brand formats in the premium category and discount to cater for different market segments, in line with competitors like Shoprite and Pick n Pay, which operate different brands. Swartz said the premium brand will be unveiled before year end, while the discount stores will start being rolled out early next year.
Salome Maruma, senior investment analyst at Mergence Investment Managers, said given the operational challenges related to SAP, domestic competitive dynamics mainly from Shoprite Sixty60 and dealing with inflation in their European businesses, “I think the group did well to largely protect margins. Additionally, an indication that Poland may be exited before 2024 calendar year end, was a positive surprise.”
She said the worst was over for the company, though South Africa’s gross profit margins could see some further pressure in the second half of the group’s financial year.
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