SPAR taking on Shoprite and Pick n Pay in South Africa – with a plan for Woolworths, too

Retail group SPAR says it will launch a “bespoke high-end” private label offering to capture the higher-income consumers in South Africa—while also looking to boost its presence in the discount retailer segment.

Reporting its full year results ending September 2024, the retailer reported total turnover of R152.3 billion for the period, up from R146.4 billion the year before.

The group reported a jump in pre-tax profits to R2.1 billion, when excluding the R1.3 billion drag from its discontinued Polish operation.

Profit after tax was up to R1.65 billion from R1.36 billion, excluding discontinued operations.

When factoring in the discontinued operations, this dropped to a much smaller profit of R352 million (2023: R443 million), given the R1.3 billion loss emanating from Poland.

Headline earnings per share were recorded at 918 cents, up 11.1% from 826 cents in 2023.

The group did not declare a dividend for the year, considering the work that has been, and continues to be done to stabilise its finances and build resilience.

Turnaround

According to SPAR, the group’s results reflect the significant strides it has made in shifting its strategic priorities and optimising its operations.

This includes navigating a challenging trading environment and addressing consumer pressures across various territories, together with the dealing with the ongoing impacts of the SAP system implementation in South Africa.

The group has been steadily recovering from a R1.6 billion loss from the botched integration of a SAP enterprise resource planning (ERP) system at its South African business. 

However, one of the biggest boosts to its operations is disposing of the disastrous venture into Poland,

As communicated on 21 November 2024, the sale of the Group’s interest in SPAR Poland was approved by the Polish anti-monopoly authorities (UOKiK.

SPAR said the purchaser is now conducting a final confirmatory due diligence and the final disposal of the Polish business will be completed once this process is finalised.

The group is expecting to finalise the exit from Poland by early January 2025, it said.

Regarding the SAP system, SPAR said that significant progress has been made in resolving SAP integration issues, including improving visibility of pricing and subsidies for buyers, as well as addressing warehouse management inefficiencies that increased labour and transport costs through the selection of a new warehouse management system.

“Service levels achieved are currently in excess of 90%, with KZN loyalty rates rising from 68.6% in the second quarter of 2024 to 70.9% in the fourth quarter of 2024,” it said.

Plans ahead

Looking ahead, SPAR said that the operating environment across its territories will remain challenging due to inflationary pressure on food, fuel and energy—although these are showing signs of easing in some areas.

In South Africa, similar to other competing retail groups, SPAR said it is seeing strong growth in value-focused formats and subdued growth in higher-end stores.

“(This illustrates) the prevailing tough macro-economic conditions and the impact on the middle and higher segment consumers,” it said.

The group said that it sees all customers as ‘one segment’ and wants to focus on “clarifying our market positioning through clearer format and brand architecture”.

To that end, the group said that its tiered private label approach is well placed to offer better value for all shopping budgets. It will launch a bespoke high-end offering to capture the higher-income consumer segment.

Woolworths Food currently dominates the higher-income segment, with competition from the Checkers FreshX brand. Before its recent strategic shift, Pick n Pay was also looking to compete in this space.

On the other end of the spectrum, SPAR said it will also put focus on the discount retailer segment, which is fast becoming the next major battleground for retailers.

SPAR’s “revitalised” SaveMor store format will include stocking high-quality products at competitive prices. The group said that the model will focus on operational efficiency to establish SaveMor as a leading discount retailer.

Retailers are drawing battle lines in this segment, with Pick n Pay listing its discount retail brand, Boxer, on the JSE on Thursday (28 November)—while Shoprite’s USave is also a major player.

Recent findings in McKinsey & Company’s 2024 State of Grocery Retail in South Africa report, pointed to South Africa’s discount retailers growing twice as fast as the total market, with Pick n Pay’s Boxer and Shoprite’s Usave growing at a combined compound annual growth rate (CAGR) of 12% between 2019 and 2023, compared with the 6% CAGR for the market as a whole.

Pick n Pay wants to add 200 new discount grocery Boxer stores by 2026. It currently has 500 stores.

Shoprite plans to have 1,000 Usave discount stores over the next five years, escalating a turf war for South Africa’s low-income shoppers.

Read: Shoprite and Pick n Pay’s next power moves