SPAR Switzerland maintained a steady improvement in its financial position since the turnaround achieved in 2017.
Retail turnover is slightly down compared to last year given the strategic closure of six loss-making stores since February 2017 as well as the pressure on the restaurant and business trade that supports our cash and carry operations, which has seen significant closures and liquidations in the year. Our most significant challenge remains the ability to drive top-line growth in the context of a flat economy.
Expense and margin management was exceptional, resulting in a solid profit after tax of CHF6.3 million for the year (2017: CHF2.5 million). Read more about Switzerland’s financial performance here.
A strong focus on the implementation of category management resulted in significant improvements in demand-based planning which supported a dramatic reduction in stock levels. The latter was especially effective in terms of promotional stocks. Category management has been implemented at 69 stores and two TopCC stores, and is expected to be completed for all stores within 24 months. At the distribution centre, this resulted in revised range requirements and the elimination of stock-keeping units.
The successful category management rollout impacted volumes of cases despatched negatively, which was exacerbated by the closure of stores. However, the improvement in cash flow, increased profits and increased consumer basket spend negated reduced volumes.
Three new SPAR stores opened this year and we gained a supply contract for a further 27 stores trading under their own brand in the French-speaking area of Switzerland. 19 stores were refurbished of which seven involved major upgrades.
Our store disposal drive has slowed down due to the extensive funding required to facilitate these deals. We anticipated 10 closures but only achieved four. We continue to explore the feasibility of further closures.
Significant progress and savings were made in our people and supply chain costs. We optimised our workforce following the sale of several underperforming corporate stores. Warehouse productivity improvements followed from an initiative to start using rolltainers – saving warehouse space and transport costs.
Although we continue to reduce the frequency of deliveries, the launch of Fresh To Go and the commencement of supply to a new group of stores in the Western part of Switzerland, limited potential cost savings.
A new transport management and fleet optimisation system is on track to be introduced in October this year to further improve efficiencies. This, combined with backhaul and one-way load opportunities, as well as the use of rail transport to remote areas, will allow us to further reduce and optimise distribution costs.
A master plan for capital expenditure over the next ten years has been approved by the board. This will ensure that we maintain and upgrade facilities according to a long-term, phased and returns-driven plan.
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. To support this position, SPAR Switzerland launched the first SPAR Natural concept which focuses on healthy eating, organics, vegan and vegetarian options as well as supplements. The Fresh To Go brand was launched in May, emphasising freshly prepared, tasty and healthy daily take home meals. The offering will be expanded following early successes. An in-store liquor and wine concept is set to be launched in 2019.
Our relationship with SPAR South Africa is particularly important in new product and concept launches as we can test and adapt South African versions without incurring research and development costs. Examples of this include the Win A Car competition, the SPAR Friends loyalty programme, fleet planning and in-store concepts such as Beantree@SPAR.
Having developed an omni-channel and online delivery strategy in 2017, aimed at cost-effectiveness and practicality, a TopCC store was used as a pilot this year. This provides a platform for future expansion into the SPAR network. On completion of the pilot, the capability will be rolled out to the balance of TopCC outlets.
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 can order quickly and conveniently, and delivery takes place directly through our own truck fleet, with click-and-collect also as a potential future option.
As the current challenging economic conditions are expected to prevail over the medium term, we are focusing on creating additional revenue streams through our Fresh and convenience offerings. The Fresh To Go range realised an additional CHF 1 million in sales in the first six week after being launched – a successful driver for further growth.
|2017 focus area||Examples of progress and challenges in 2018|
|Improving our retail execution and performance to achieve the required returns. This will be supported by SPAR Switzerland’s world-class distribution capability and support services, and with the recognition that this will take some time to achieve.||Distribution centre and retail profitability increased substantially in the past year. Sustained success depends on the ability to develop and expand our store base despite exceptionally high construction and refurbishment costs.|
|Going forward, SPAR Switzerland will build trust and strengthen our relationships with our retailers thereby involving them in our decision-making processes and strategy.||We have been sharing our vision and strategy with all our retailers and at our members’ meetings. We established a Marketing Committee and encouraged more involvement and decision-making support from the guild – historically not the case. Travel incentives and exposure to South African retailers and conventions help us shift the culture of the business.|
|We will focus on quality and convenience and cluster our stores based on consumer needs defining hero categories per cluster, as well as creating convenience driven solutions for our retail stores.||The evolution and success of concepts such as Beantree@SPAR and Fresh To Go are evidence of progress. 43 Beantree@SPAR concepts were launched. SPAR advertising also assists by emphasising our convenience driven strategy.|
|In terms of category management, we will perform continuous range reviews to align with customer needs, use data and analytics to determine Swiss consumer segments and their needs and position our stores and product offering based on these customised needs.||The implementation of category management resulted in more customised ranges based on consumer needs. We launched the Spar Friends programme as a loyalty platform that is critical for future growth. By combining the launch with a Win A Car competition, we registered 123 000 customers. Since the launch we achieved a 21% contribution to retail turnover from card holders due to our ability to customise our offering. The average card holder basket is also significantly higher in value than those of non-card holders.|
|SPAR Switzerland plans to host joint business planning sessions with our major suppliers to focus on the collective opportunities that exist to eliminate waste in the supply chain and share the benefits that accrue.||Joint business planning commenced with one of our biggest suppliers, and significant opportunities have been identified for joint savings. Unilever has been lined up to further progress this initiative and through 2019 we will expand this project to maximise its potential across our supplier network.|
|In line with our new strategy, an employee culture programme, to bed down our purpose values and vision, is in the planning stages and almost ready for roll-out.||The very heart of our business remains our values and culture, which underpin all that we do. The employee culture programme was launched and activities to embed this is underway.|