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Retail consumers now seeking value as cost of living escalates, says Spar

| Economic factors

By: IOL

COST-of-living pressures muzzled sales volumes for retailer Spar’s Southern African business, including South Africa, although group turnover, which also accounts for its stores in Switzerland, Ireland and England, was up 9.3% for the five-month period to February 16.

Spar, which is disposing of its operations in Poland, runs grocery, retail, wholesale, liquor and pharmaceutical businesses.

Despite raising turnover in the period under review by 9.3%, Spar said the performance was impacted by the higher cost-of-living challenges facing consumers across all regions of operations and business disruptions.

“The group’s diversified strategy has ensured delivery of a strong top line, aided by the strength of foreign currency against the rand,” said Spar in a trading update on Wednesday.

As a result of “ongoing inflationary and other cost-of-living pressures,” consumers of Spar and other retailers in South Africa, as well as in other markets, continued to “seek greater value” from grocers.

Under its southern Africa region, the Spar grocery wholesale business raised sales by 5.1%, with performance “negatively impacted by the system-related business disruption” experienced in the KwaZulu-Natal (KZN) region.

In its 2023 full year, Spar reported a 47% slump in operating profit, with a failure related to its IT systems in South Africa contributing R1.6 billion in lost sales. This forced the company to withhold a dividend payment for the period.

Although its new SAP system for the KZN region went live in February last year, the disruption to the IT system failure in the past one year period has been “extensive”, the company said.

“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,” it explained.

Over the past six months, Spar says it has performed a thorough reassessment of the SAP project aimed at 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 involve separation of the ERP system from the warehouse system. The systems will subsequently be implemented separately.

Nevertheless, the Spar group’s private label business performed strongly during the period under review. Spar has adopted a strategy “to offer better value” for independent retailers and shoppers.

Its on-demand shopping platform, SPAR2U, was now available at 403 sites for groceries and liquor compared to availability at 201 sites as at the beginning of last year. Spar’s online food and liquor sales picked up phenomenal growth during the period under review, rising by 450%, while the TOPS liquor variation posted strong recovery to grow sales by 12.7%.

In spite of a sustained downturn in both building materials retail and construction activity, the group’s BuildIt division had sales growth of 0.5%.

“The pharmaceutical business delivered strong turnover growth of 11.6%, with both Pharmacy at SPAR and Scriptwise trading robustly during the period,” said the company.

Spar’s Irish and South West England outlets had “solid trading performance” after growing turnover by 7.1% in EUR terms and 19.1% in South Africa rand terms.

However, in Switzerland Spar reported a decline in turnover of 5.7%, although this was up 9.2% in rand terms as consumer preference in the European market shifted towards supermarkets, discounters or neighbouring-country retailers offering cheaper prices.

After announcing the disposal of its Polish division, Spar’s turnover in the country declined by 2.9% although, in rand terms, turnover was up 16.1%.

Turnover for the Poland stores was affected by declining retail consumer loyalty “following the group’s announcement to sell its interests” in Spar Poland

“Significant progress has been made to dispose of the group’s interests in Spar Poland. Management’s ambition is to negotiate the best possible outcome for all stakeholders. Negotiations are still in early stages and more information will be provided as the process progresses,” the company advised.

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