Spar takes another bite of emerging-market biscuit
GROWING PRESENCE: A Spar outlet in Portaferry, Ireland. Spar announced intentions to enter into a joint venture agreement with Sri Lanka food manufacturer Ceylon Biscuits SPAR South Africa will extend its presence in emerging markets through a joint venture agreement with Sri Lanka-based food manufacturer Ceylon Biscuits.
“It will take a couple of years to settle down there but it will generate some decent revenue for us,” Spar CEO Graham O’Connor said on Wednesday.
The deal with Ceylon Biscuits — one of the largest manufacturers of biscuits, cereal, soups and soyabased products in Sri Lanka — is Spar’s first partnership in the country.
“It’s a robust country and it’s a developing market. They came and they looked at our market here and they liked it and they liked what we had to offer,” said O’Connor.
“And as an emerging market they are poised for growth there,” he added.
Spar viewed Sri Lanka as an attractive market because GDP had grown between 7% and 12% for the past seven years, the employment rate was high and electricity affordable.
“It’s a good place to do business and we are excited about the opportunity there.”
Spar’s distribution centres supply 70% of goods stocked in Spar stores, with the balance supplied directly by manufacturers or other suppliers.
The wholesaler and distributor services 2 033 independent retailers that trade under the Spar banner including Superspar, Spar, Kwikspar, SaveMor, Tops at Spar, Build It and Pharmacy at Spar outlets.
Just two years ago, analysts described Spar as a “sleep-easy investment”, whose growth and investment strategies were too safe.
Since then, the retailer has acquired 80% of BWG Foods, which owns Spar in Ireland and in the southwest of England, for à55-million and a 60% stake in Spar Switzerland for R690-million as a rand hedge.
Victor Dima, an analyst at Dubaibased Arqaam Capital, said: “Spar South Africa remains an emerging-market company, so exposure to emerging markets will be something that can bring growth.”
“[In Europe] you have a market dominated by the hard discounters; competing with them as a Spar is not as easy.
“It’s almost a battle for survival in terms of pricing and efficiency — and addressing these competitive issues is much harder,” said Dima.
“When it comes to emerging markets, factors such as inflation, economic growth and currency fluctuations are volatile in nature.
“At the same time, Spar does have the ability to capture market share and normally emerging markets are not as competitive.”
This week, Spar reported that turnover for the year ended September grew 24.5% to R92.2billion compared with the same period last year.
Profit after tax was up 24.6% to R2.44-billion and the group declared an annual dividend of 410c per share.
Operating profit increased 41.4% to R433.4- million at its Irish operations.
But despite a strong performance in Ireland, the group’s unit in Switzerland posted an operating profit of only R32.2-million.
Spar Switzerland’s performance was muted by marketing and selling costs higher than those encountered in Ireland and by greater involvement in corporate retailers — 69.3% higher than in Ireland.
O’Connor said Spar Switzerland had failed to resolve several problems over the past year.
“We thought they [management] were addressing those issues and they weren’t . . . it will take a couple of years to settle down there.”
Asked whether an overhaul of Spar Switzerland’s management team was on the horizon, O’Connor said: “Not just yet. We are giving them a second bite at the cherry, but we’ve got them under the crunch.” much more
Sri Lanka is a good place to do business and we are excited by the opportunities