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Operational overview

Swiss retail in general experienced a very tough year, with sales, margins and costs under significant pressure. SPAR Switzerland consequently reported a loss in the first half of the year.

Following decisive action towards a turnaround, the second half performance delivered a profit after tax of CHF4.06 million. Read more about Switzerland’s financial performance here.

Despite trying economic conditions, the very heart of our business remains our values and culture, which underpin all that we do. This year, there has been a definite shift in culture and a sense of optimism for the future at SPAR Switzerland.

We believe that there is room for expansionary growth in German-speaking Switzerland as well as in the other regions of the country. Our immediate priority remains the expansion in the German-speaking part of the country with expansionary opportunities into the French and Italian areas to be explored based on their individual merits. It is essential that we build a niche market due to the dominance of competitors in the mainstream grocery trade. Our ongoing focus on improving the retail performance of SPAR Switzerland included the appointment of Rob Philipson as Chief Executive Officer to drive the transformation and strategic implementation process. We also restructured retail operations, increased the executive management structure to have a specialised focus in all areas, and took a strategic decision to sell corporate stores to independent retailers. This financial year, seven stores were sold to independent retailers, with good results, and we will be targeting at least another 10 next year. The review of loss-making corporate stores ‒ and in certain instances deciding on the closure of these operations due to their poor financial prospects ‒ is aligned to our strategic approach.

In March, we conducted a session to develop a new strategy for SPAR Switzerland One which is aligned to the group strategy, but also addresses our unique risks and opportunities. We fine-tuned our values, purpose and vision and established a clear set of outcomes with strategic imperatives aligned to each.

Due to the weakened sales performance of our SPAR retailers and the deflationary environment, delivery from the distribution centre declined by 9% compared to last year. Despite this hampered growth, 29 million cases were despatched during the year (2016: 15.46 million) and core distribution and warehousing activities delivered improved gross margins. Continued investment in world-class facilities and systems, like centralised billing, further ensures the national distribution centre is geared for future growth.

SPAR Switzerland focuses on delivering value through Fresh, and providing a wide selection of quality meats, wines and day-to-day grocery products at a competitive price in the convenience market. We continually search for expansion opportunities, while improving our retail offering, especially in Fresh. This is supported by refurbishments at store level to accommodate concept and departmental innovation as a key future business driver. During the financial year, our retailers opened a total of 14 stores across the brands, three SPAR, three SPAR Express and eight MAXI stores. A further three stores in our retail stable were refurbished. Our TopCC store in Zuzwil was refurbished and launched in August and is currently trading at 11% up on last year. The trading number excludes the delivery service, which was moved to the TopCC St Gallen premises during the refurbishment, and which will translate into additional future volume when these services return to normal in January 2018.

The operational expertise and support we receive from South Africa across all functions, assists in optimising our business. SPAR Switzerland enjoys access to projects and concepts that have already been implemented successfully, such as the Beantree coffee offering, the first three of which were launched in the 2017 financial year and a further 50 have been targeted for launch in the 2018 financial year. SPAR Rewards, category management and the e-learning programs will be implemented in 2018.

The following table provides an overview of our stated strategic outcomes and associated strategic imperatives, which are aligned with group outcomes but differ slightly because of our unique positioning, and provides SPAR Switzerland’s response per outcome:

SPAR’s implementation progress, risks and related opportunities in Switzerland

While SPAR Switzerland’s logistic operations are not as efficient and cost effective as what they should be, our first priority, as a wholesaler and distributor of goods, is the optimisation of our supply chain, as it represents SPAR Switzerland’s single biggest area of potential to leverage profits quickly, if co-ordinated correctly.

We conducted a status audit of the supply chains for both SPAR and TopCC, and are currently implementing an action plan to streamline and optimise our supply chains based on the findings.

We have eliminated the late order function, reduced TopCC deliveries from 12 to six per week, and SPAR store deliveries are similarly reduced from six to three per week based on volume, with the full rollout to be implemented by the end of 2018. An expanded central billing and dropshipment network will significantly impact small to medium suppliers as they will now be able to participate in an expanded retail network.

SPAR Switzerland’s redefined convenience branding does not position itself on price, but on quality and profit-generating specialised items. In line with this strategy, we recently completed the roll-out of a new pricing policy, which is reliably and regularly benchmarked against competitors. The ability to import SPAR branded products at competitive prices from neighbouring countries such as Austria, Italy and the Netherlands, in particular, strengthens SPAR Switzerland’s product base, while offering consumers added value through variety and increased choice. We are also exploring potential channels for reducing import costs into Switzerland, primarily, but not restricted to, the SPAR brand area of the business. Innovative promotional activities that have been planned are anticipated to contribute positively to retail sales growth in the year ahead.

This year, SPAR Switzerland appointed a new logistics operations director, who is focusing on introducing new operating disciplines and standards. We are also changing our legacy procedures to facilitate moving from a ‘push’ to a ‘pull’ – to create a more demand-based system of stock into stores. Category management is being rolled out across the business and will allow us to customise and optimise our range and improve cash flow. This will enhance profitability at wholesale and retail level ‒ illustrated by a CHF9 million reduction in inventory levels in the past six months.

To shift to a more demand-led and cost efficient approach, we had to engage with our retailers and corporate store managers, and also strengthened our relationship with the guild and retailers.

SPAR Switzerland has appointed an international store designer to accelerate the roll-out of new generation stores and refurbishments, thereby changing the face of our retail offering to reflect modern supermarket trends. The first new generation stores were launched at Lugano, Eschen, Einsiedeln and Triesen. All store designs must now align to this design methodology. However, refurbishments present a significant challenge due to the cost of development, which can be up to four times higher than in South Africa. Limited capital investment capacity could therefore hamper our refurbishment efforts to a degree.

We are redefining our brand DNA to become the most admired convenience brand in Switzerland. With the average SPAR Switzerland store at 200 m2– 500 m2, our stores lend themselves to the convenience store model, which does not compete purely on price, but on accessibility, quality and profit-generating specialised items like convenience foods and coffee. We will leverage the international SPAR brand to shift away from a price-centred model to a convenience, fresh, quality and neighbourhood-focused position. We have launched the first three Beantree@SPAR coffee offerings, are piloting a convenience section in TopCC at Buchs and are currently developing an in-store bakery as well as a home meal replacement (HMR), known as Fresh To Go, focused on quality and product innovation.

SPAR Switzerland’s brand is further enhanced through the sponsorship of a range of healthy lifestyle events as well as customer loyalty programmes. Our TopCC gold card offers customers an attractive rebate scheme to entrench loyalty and we are also about to launch our own SPAR rewards or ‘Friends’ card aligned with the SA Rewards card and the successes it has had.

Our values of passion, trust and collaboration underpin all relationships within the business. This year, we held a ‘South Africa day’ with all distribution centre employees to address uncertainties around the South African acquisition and reassure them of our long- term intentions with the business and the growth prospects we believe it has. Further to this all employees have been introduced to our new strategy and action plans.

Under the current conditions, building and maintaining good relationships with retailers remains a top priority and as such we have introduced an additional three members meetings and two retail trade shows which we use to communicate and showcase our business.

Retailer priorities for 2017 were profitability, growth and sustainability. Given that volume increases at our distribution centre rely largely on retail performance, this has driven our philosophy of continuously driving and improving the retail offering.

We are currently conducting retail financial benchmarking to determine actual profitability, understand product mix and how it impacts margins, and to develop insights into the current financial models and pricing structures of all stores. As a result of our early assessments, we have developed an action plan to enable retailers to generate adequate returns that allow for reinvestment in their business.

We have presented our revised strategy to all our retailers and increased the frequency of our retail meetings to encourage retailer input. We have also restructured our support services to better assist them.

A growing market trend towards online shopping is having a negative effect on SPAR Switzerland’s growth, despite the fact that online food shopping is yet to prove financially viable.

We have developed an omni-channel and online delivery strategy based on cost-effectiveness and practicality, which we will launch in our first TopCC store as a pilot in January 2018. SPAR Switzerland’s omni-channel strategy includes an integrated ordering and delivery system through our internet shop, which is fully integrated in the SAP IT environment. Customers are able to order quickly and conveniently and delivery takes place directly through our own truck fleet, with click-and-collect also as a potential future option.

Strategic outcome

World-class replenishment system

SPAR’s implementation progress, risks and related opportunities in Switzerland

While SPAR Switzerland’s logistic operations are highly cost effective, our first priority, as a wholesaler and distributor of goods, is supply chain optimisation, as it represents SPAR Switzerland’s single biggest area of potential to leverage profits quickly, if co-ordinated correctly.

We conducted a status audit of the supply chains for both SPAR and TopCC, and are currently implementing an action plan to streamline and optimise our supply chains based on the findings.

We have eliminated the late order function, reduced TopCC deliveries significantly and a new central billing and dropshipment network will significantly impact small to medium suppliers as they will now be able to participate in an expanded retail network.

Strategic outcome

Competitive pricing

SPAR’s implementation progress, risks and related opportunities in Switzerland

SPAR Switzerland’s redefined convenience branding does not position itself on price, but on quality and profit-generating specialised items. In line with this strategy, we recently completed the roll-out of a new pricing policy, which is reliably and regularly benchmarked against competitors. The ability to import SPAR branded products at competitive prices from neighbouring countries such as Austria, Italy and the Netherlands, in particular, strengthens SPAR Switzerland’s product base, while offering consumers added value through variety and increased choice.

Promotional activities are anticipated to contribute positively to retail sales growth. To counter the emergence of mass discounters, we have changed the frequency of our promotions to bi-monthly.

Strategic outcome

Comprehensive range

SPAR’s implementation progress, risks and related opportunities in Switzerland

This year, SPAR Switzerland appointed a new operations director, who is focusing on introducing new operating and administrative standards. We are changing our legacy procedures to facilitate moving from a ‘push’ to a ‘pull’ – a more demand-based – system of stock into stores. Category management is being rolled out across the business and will allow us to customise and optimise our range and improve cash flow. To shift to a more demand-led approach, we need to engage with our retailers and corporate store managers, which we intend doing by strengthening our relationship with the guild.

As product and range clustering in stores is critical, SPAR Switzerland has appointed an international store designer to accelerate the roll-out of new generation stores and refurbishments, to exceed competitive standards. The first new generation stores were launched at Lugano, Eschen and Einsiedeln and all store designs must now align to this concept, which could be challenging, since the cost of development, which is significantly higher than in South Africa, could hamper our refurbishment efforts to a degree.

Strategic outcome

World-class brands

SPAR’s implementation progress, risks and related opportunities in Switzerland

We are redefining our brand DNA to become the most admired convenience brand in Switzerland. With the average SPAR Switzerland store at XX m2–XX m2, our stores lend themselves to the convenience store model, which does not compete on price, but on quality and profit-generating specialised items like convenience foods and coffee. We will leverage the international SPAR brand to shift away from a price-centred model to a quality- and community-focused position. We have launched the first Beantree coffee offering, are piloting a convenience section in TopCC at XX and are currently developing Backstube, an in-store bakery as well as a home meal replacement (HMR) concept, focused on quality rather than price.

SPAR Switzerland’s brand is further enhanced through the sponsorship of a range of healthy lifestyle events as well as customer loyalty programmes. Our TopCC gold card offers customers an attractive rebate scheme. Over XX employees from large and medium-sized companies have registered for a TopCC card, and we have seen sales of CHF XX million to this target group. We are also about to launch our own SPAR Rewards or ‘Friends’ card.

Internally, we engage in ongoing product development, which keeps our house brands at the forefront of the latest trends.

Strategic outcome

Best retailers

SPAR’s implementation progress, risks and related opportunities in Switzerland

Our values of passion, trust and collaboration underpin all relationships within the business. This year, we held a ‘South Africa day’ with all distribution centre employees to address uncertainties around the South African acquisition and reassure them. All employees have also been introduced to our new strategy and action plans.

Under the current conditions, building and maintaining good relationships with retailers remains a top priority.

Strategic outcome

New business growth

SPAR’s implementation progress, risks and related opportunities in Switzerland

Retailer priorities for 2017 were profitability, growth and sustainability. Volume increases at our distribution centre relies on retail sales, which demands that we continuously drive and improve the retail offering.

We conducted retail financial benchmarking to determine actual profitability, understand product mix and how it impacts margins, and to develop insights into the financial models and pricing structures of all stores. As a result, we developed an action plan to enable retailers to generate good returns that allow for reinvestment.

We presented our revised strategy to all our retailers and increased the frequency of meetings to encourage retailer input. We have also restructured our support services to better assist them.

Growth of online poses a risk if SPAR and TopCC do not effectively enter this space. A growing market trend towards online shopping is having a negative effect on SPAR Switzerland’s growth; despite the fact that online food shopping is yet to prove generally financially viable.

We have developed an omni-channel and online delivery strategy based on cost-effectiveness and practicality, which launched at our XX TopCC store as a pilot in July. SPAR Switzerland’s omni-channel strategy includes an integrated ordering and delivery system through our internet shop, which is fully integrated in the SAP IT environment. Customers are able to order quickly and conveniently and delivery takes place directly through our own truck fleet, with click-and-collect also as an option