The Spar Group
The Spar Group Ltd, is part of Spar International, which operates in forty-four countries, supporting a network of independent retailers trading under the Spar brand. Spar operates eight hundred and fifty stores in SA, on a franchise basis, as a wholesaler of goods and services to SPAR, TOPS, and Build IT stores. This is a major variance from that of its local competitors, which in the main are company owned retailers which in general have higher operating overhead costs as well as larger capital expenditure requirements.
The diversified grocery business, includes a number distinctive Spar store formats, ranging from the smaller Spar Express and Kwickspar retailers operating in rural and neighbourhood locations to the Super Spar stores which are predominantly situated in major metropolitan locations.
The smaller store formats offered by Spar appeared to be a winner in the Covid-19 pandemic, as shoppers steered away from larger shopping malls. During the reporting period, group sales increased by 12.4% from R99.67 billion to R112 billion, with core sales increasing by 8.7%, and like-for-like sales up by 7.5%.
On a geographical basis, Spar Southern Africa sales improved by 4.8%, driven by strong core supermarket sales growth, as consumers stayed at home, due to the lockdown. Building materials sales from the Build It businesses , as well as the Tops liquor stores, were under strict regulation for much of the lockdown period which negatively impacted revenues of these businesses. Building materials sales were down by 3.5% and liquor sales declined by 16.4% for the forty-eight weeks. Opening up of the SA economy should be a boost for the non-grocery, merchandise operations, with Build It reporting a strong turnaround and liquor sales buoyant.
The offshore operations in Ireland increased turnover by 5.5% in Euro terms, with the near customer proximity of their stores a positive catalyst. The Spar operations in Switzerland showed a robust increase in sales of 11.4%, in Swiss Franc, with both the neighbourhood and cash and carry stores reporting strong sales. The European offshore operations is another difference relative to its SA peers with these operations now appearing to gain traction after a bumpy start. These operations also provide valuable hard currency earnings, especially pertinent in an era of rand weakness.
The recently acquired Polish operations are however struggling and are off to a slow start largely due to the pandemic restrictions which has resulted in delays of integrating and onboarding of existing Spar retailers. Despite the headwinds, the Polish operations delivered turnover of R1.97 billion, with management expecting a positive contribution to group results by the end of 2021.
The diversity of the SA trading operations, as well as the operations in Europe are now in turnaround mode with Switzerland in particular showing strong growth in sales following store upgrades.
The Spar share price has already reflected the positive tone in the trading update, which many market commentators saw as ahead of consensus expectations. Full financial results for the year ending 30th September 2020 will be released on or about 18th November 2020.