Spar outperforms its rivals with a ‘simple, robust’ model

● The Spar Group’s share price has outperformed rivals over the past few years, aided by a strong performance from its liquor brands and gains in market share.

Since January 2014, Spar’s share price has gained 59%, while Woolworths’ and Shoprite’s have tumbled about 20%. In the same period, Pick n Pay’s has risen 33%.

Alec Abraham, equity analyst at Sasfin Wealth, said Spar had a simple, robust model. The group has an almost 30% share of the food and grocery market yet it doesn’t run most of its stores, he said.

“They’re better than the typical wholesaler because they’ve got captive market in the guild members and they’re better than a pure-play logistics operator because they’ve got a captive market in delivering supplies to those guild members,” Abraham said.

“They are a strong distributor and that’s what they should stick to.”

Casparus Treurnicht, a portfolio manager at Gryphon Asset Management, said Spar was grabbing at the market share of Pick n Pay and even Woolworths.

“Refurbishments really improved the look and feel of stores and they resonate well with especially higher-LSM customers. Spar is more focused on a smaller format with a niche look while the others are following the relatively bigger formats,” Treurnicht said.

This week Spar’s share price rose 10% after releasing results for the year to end September, which showed a 7.2% rise in operating profit.

In the reporting period, Spar upgraded 298 stores, and opened 113 new ones. It now has 2,349 stores in Southern Africa, 43 of which are corporate stores.

Treurnicht said: “They revamped almost 14% of their footprint. This is remarkable and it’s working.”

As ever, the star performer was the Tops liquor brand with turnover surging 17.6%, driven by strong advertising and promotional activity. The makeovers of the liquor stores also helped beer and wine sales, said The Spar Group CEO Graham O’Connor.

Treurnicht praised Spar for being the retailer that pioneered the strategy of having its liquor brand next to its grocery stores.

“Once you have visited a Spar, you can make a turn by the liquor store … the other big retailers are only doing catch-up. Also, distribution will be a massive win as you deliver for three stores [Spar, Tops and Spar Pharmacy] in one trip.”

Spar’s expansion internationally includes Ireland and Switzerland, and more recently Poland. In Poland, the group has 250 franchised stores and has identified 130 more. It recently concluded its takeover of Polish retail chain Piotr i Pawal.

In Switzerland, Spar experienced challenging trading, a devaluation of the franc and low economic growth.

Its competitors faced challenges offshore that have hampered some of their operations outside SA. Currency devaluations and challenging economies in some African markets hit Shoprite. Pick n Pay recently highlighted the challenges at operations in Zambia and Zimbabwe, and Woolworths is struggling to fix its Australian business, David Jones.