SPAR, the second-largest retailer in South Africa, is continuing its recovery from several years of strategic missteps, although its sales remain under pressure. According to a trading update released on Thursday, 27 February 2025, the retailer has seen the closure of 13 stores in the 18-week period leading up to 31 January 2025, as it grapples with both domestic and international hurdles.
A significant portion of SPAR’s recent difficulties stemmed from the troubled implementation of a new SAP enterprise resource planning (ERP) system at its KwaZulu-Natal distribution centre, the largest of its kind in South Africa. The rollout of this system, which was supposed to streamline operations, instead resulted in major logistical challenges. The system’s failure to meet expectations, coupled with insufficient staff training, disrupted order fulfilment, leading to decreased retailer loyalty. To mitigate the issue, SPAR had to encourage retailers in KwaZulu-Natal to source products from alternative suppliers, further eroding customer loyalty. This loss of business, coupled with a decline in earnings from its South African operations, led to SPAR breaching its debt covenants and struggling with rising foreign currency debt.
Meanwhile, its largest competitor, Shoprite, has capitalized on SPAR’s difficulties, expanding its market share across South Africa. In response, SPAR has worked diligently to resolve the issues at its KwaZulu-Natal facility. The retailer now reports significant improvements, particularly in pricing visibility, following a series of targeted interventions and architectural modifications to the SAP system. The company has seen a notable recovery in loyalty levels, as well as improvements in both gross profit and trading profit margins, achieving four consecutive months of profitability. SPAR’s plans for the next phase of SAP implementation will focus on its Build it Imports Warehouse and Eastern Cape distribution centre, with completion slated for the first half of 2026.
In addition to its South African challenges, SPAR’s European acquisitions have proven problematic, particularly its Polish business. Acquired for just one euro, SPAR took on the debt of its Polish operations and invested heavily in the failing business. Despite efforts to revive the operation, SPAR Poland’s low retailer loyalty, sub-scale distribution centre, and mounting debt proved insurmountable. Consequently, SPAR has been in the process of selling its Polish business, completing the disposal in January 2025. With this sale, SPAR has made significant strides in its European strategic review, which is expected to be completed by June 2025.
The company’s performance in the 18-week period revealed that total sales from continuing operations declined by 1.6%. However, its Southern African division showed stronger results, with retail sales increasing by 3.4% across its 2,029 supermarket and liquor stores, and same-store sales growing by 3%. This growth was especially notable in lower-income grocery stores, although middle- and higher-end stores saw more subdued performance. SPAR attributed some of the sales decline to the planned closure of underperforming stores in its South Rand Region, reduced promotional activity, and supply chain issues in Mozambique.
Despite these setbacks, SPAR showed progress in reducing operating losses from corporate grocery and liquor stores. The retailer also experienced impressive growth in its on-demand shopping platform, SPAR2U, which saw order volumes soar by 285%. Build it, SPAR’s building materials supplier business, also posted solid growth, with top-line sales rising by 7.3%. In the pharmaceutical segment, the company reported strong turnover growth of 13.3%, driven by robust sales in its Wholesaler and Scriptwise divisions.
On the European front, SPAR’s operations in the UK and Switzerland continued to face difficulties. The BWG Group, which includes operations in Ireland and the South West of England, reported a sales decline of 1.6% in euro terms. Consumer spending has been affected by higher living costs, with many consumers shifting their spending to larger supermarket formats. In Ireland, while inflation has moderated, price sensitivity remains high. Nonetheless, SPAR noted that strategic initiatives, such as cost management and new store developments, have helped mitigate the impacts of these challenges.
SPAR Switzerland also reported a decline in turnover, dropping 5.2% in Swiss franc terms, as a result of increasing living costs and heightened competition. However, the company pointed out that its private-label range continues to perform well, catering to the rising demand for affordable options in the marketplace.
Looking ahead, SPAR remains focused on improving operational efficiencies, continuing its strategic review in Europe, and further strengthening its position in Southern Africa. The company is set to release its full financial results for the six months ending 31 March 2025, expected on or about 4 June 2025.
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