Spar SA advised to tread carefully as it reportedly sizes up Polish retailer

● Spar South Africa’s European ambitions may see it strengthening its distribution arm, with its rumoured interest in a controlling stake in Polish retailer Bac-Pol.

This week, a fast-moving consumer goods website, Wiadomosci Handlowe in Poland, reported that Spar South Africa might be sniffing around the market to acquire some of the Bac-Pol group’s assets.

While the international Spar brand already has a presence in Poland through the Bac-Pol group, which has the master licence for the country, Poland may be a first for Spar South Africa.

Alec Abraham, a senior equity analyst at Sasfin Securities, said: “In South Africa, further growth for the Spar business is limited and it would look to extend growth by going into new territories, and it is an extension of that.” But Abraham added: “I must admit that I’m a little bit nervous about [the acquisition] because of Ireland and Switzerland.”

In 2014, Spar South Africa acquired an 80% stake in Ireland-based BWG Group for R800-million. Two years later, it bought a 60% stake in Spar Switzerland for R690-million.

But the acquisitions have failed to gain traction and Spar South Africa CEO Graham O’Connor said last year that the Swiss operation was proving “tougher than expected” after sales there and in Ireland had fallen.

Abraham said: “So to be jumping into another territory now, I think it’s a little concerning. Rather focus on getting to grips on what you’ve got before extending into another territory. It seems a little bit hasty.”

Abraham said Spar should also be looking at leveraging off its distribution capacity as the Bac-Pol Capital Group was one of the largest distributors of FMCG products in Poland.

Spar South Africa has yet to confirm the deal in Poland.

O’Connor, in an e-mailed response to Business Times, said the group had not acquired any Polish business and “it would not be appropriate at this time to further speculate on any such transaction. Any media article at this time would be premature as no transaction has been agreed, or finalised.”

He added that “any comment on the article released in Poland would also be inappropriate as the Spar board have not formally considered any proposal”.

Bac-Pol’s Spar retail network in Poland has 203 stores. It also owns the Sloneczko retail network as well as several FMCG wholesalers.

Abraham said that what would probably differentiate Spar South Africa from other retailers in Europe was that it would operate a distribution business. “If you look at Ireland and Switzerland, it appears that what they are good at is the distribution side. They have been making good progress in those territories.”

Spar South Africa runs 10 main distribution centres globally, which are strategically located close to metropolitan areas.

“Where the question mark still is is running the retail operations,” Abraham said. “In South Africa it’s not so great, and in Switzerland and Ireland, and particularly in Switzerland, they run a lot more of the stores, and maybe that’s why they haven’t done particularly well in that country yet.”

The Spar group’s model is that of wholesale distribution to Spar-branded retail stores, which are mostly franchised.

Spar is not the first South African grocery retailer to consider Europe. In August, Shoprite CEO Pieter Engelbrecht announced that the retailer might look at Eastern Europe to expand its discount model, given the absence of the global network it was meant to leverage off with the proposed merger with Steinhoff, which fell through.

Much like the benefits that the Steinhoff and Shoprite merger would have produced, Spar is likely to benefit from the global network of businesses.

“The big question is, are they going to run the stores, or are they going to operate in the way that they operate in South Africa, where they are essentially a supplier to the independent retailers, as running stores themselves . . . their track record is not that great,” Abraham said.

Rather focus on getting to grips on what you’ve got

Alec Abraham Senior equity analyst at Sasfin Securities