Tech problem continues to bleed Spar

Retail group Spar’s profitability over the last year has been severely hampered by a botched implementation of SAP at its KwaZulu-Natal (KZN) distribution centre.

In a trading update for the 20 weeks ended 16 February 2024, the group said that its turnover increased by 9.3% over the period.

The weaker-than-expected grocery business performance notably impacted total wholesale sales growth of 5.6%.

It recorded combined core grocery and liquor turnover growth of 6.1% against internally measured price inflation of 7.5%

Spar’s grocery wholesale businesses increased sales by 5.1%, but its performance was severely impacted by the problems in KZN.

“In February 2023, the new system went live at the distribution centre in KZN. The disruption to this region and impact on profitability over the past 12 months has been extensive,” the group said.

“Fundamentally, while the system is functioning as designed, the business’s ability to predict demand and manage availability is not yet optimal. The sub-optimal use of the system is impacting margin and exaggerating costs for this region.”

“The group has performed a thorough reassessment of the SAP project over the past six months, which involved stabilising the KZN implementation, reassessing the warehouse management system and whether it is fit for purpose and reviewing how the system can continue to be rolled out at a significantly reduced risk level.

“This will include separating the ERP (enterprise resource planning) from the warehouse system and implementing them independently.”

Looking more positively, the group’s on-demand platform SPAR2U is now available at 403 sites for groceries and liquor (201 in January 2023), with sales increasing by 450% against the prior comparative period.

Tops at Spar Liquor also saw a strong recovery, as sales increased by 12.7%.

Build it also saw sales growth of 0.5% despite the sustained downturn in both building materials retail and construction activity, while the group’s pharmaceutical business saw turnover growth of 11.6%.

Internationally, the group’s operation in Ireland and South West England increased turnover by 7.1% in EUR terms and 19.1% in ZAR terms

In Switzerland, the group saw a decline in turnover of 5.7% in CHF terms (+9.2% in ZAR terms) as consumers’ preference “shifted towards supermarkets, discounters or neighbouring-country retailers offering lower prices.”

In Poland, turnover decreased by 2.9% in PLN terms, but increased by 16.1% in ZAR terms, as there was a decline in retailer loyalty after the group announced its plan to sell its interests in Spar Poland.

Negotiations of the sale of Spar Poland are still in the early stages, and the group said that more information will be provided as the process progresses:

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