Read about South Africa’s financial performance in the financial review.
Mitigating fuel cost increases
South Africa experienced some of its highest fuel price hikes this year. This has resulted in increasing calls for government to urgently address the policy and structural issues which have put fuel users under severe pressure.
Fuel costs comprises 3.9% of SPAR’s overall expenses and constituted approximately R184.4 million for the year (2017: R156.2 million). For consumers, the inflationary fuel pressures counteracted the deflationary trend seen in the price of food.
Continuous improvement of the SPAR vehicle fleet is therefore a core focus over the long term. Our logistics team continues to find alternative ways to get products to markets and ensure load optimisation, as well as driver management and effective routing solutions.
The national integrated transport system is fully operational and aims to enable the movement of stock through the entire network. Where the different supply chains at the distribution centres traditionally operated independently with limited product moving between them, these now form part of an integrated system. Our logistics partner has contracted with several key suppliers securing deliveries into the respective distribution centres. Further deliveries from the distribution centres are then executed to stores. Due to this initiative, several third-party transporters were onboarded, which assisted in job creation. Positive impacts include the sharing of savings achieved and a reduction in carbon emissions due to the number of empty return transports trips being drastically reduced.
Driver productivity schemes continue to drive further efficiencies.
A quick response to Listeriosis
In October 2017, there was a national outbreak of Listeriosis, with 180 deaths reported. SPAR distribution centres and retailers responded quickly by pulling lines that could possibly have been contaminated.
Consumers became more conscious of deli and cold meat products due to this outbreak and the local perishables business was severely impacted.
Since the outbreak, SPAR increased the number and frequency of food audits and implemented heightened protocols in terms of cleaning. More diligence and a greater emphasis on food safety will remain, with the emphasis on upholding SPAR standards and to comply in a more consistent manner. Read more about food audits at supplier and store level in our material relationships.
Cost-saving initiatives with impact
Several initiatives have been implemented to save costs by realigning these to lower volumes. Specific initiatives at the distribution centres included the review of cube utilisation per section, more efficient pallet builds to maximise payloads and reduce vehicle running costs. We have implemented bigger delivery windows by executing night drops to several stores on both dry goods and fresh produce to improve service levels, while gaining efficiencies delivering outside peak periods.
We continue prioritising delivery from source where possible, which entails collection at the factory and delivery at the point of order, thereby avoiding the distance, handling cost and risk, and administration requirements of transfer into regional distribution centres.
The positive long-term impact of the introduction of a new slow-moving product model between our North and South Rand facilities have not yet been fully realised following delays in the IT rollout for the project. Consolidation has been completed for the South Rand distribution facility and will be rolled out to North Rand in January 2019.
Click on a store tab to view the relevant performance stats.
SPAR, SUPERSPAR, KWIKSPAR and SPAR Express
TOPS at SPAR
Pharmacy at SPAR
Overall, 145 new stores were opened during the 2018 financial year, 276 stores were refurbished, and 39 stores were closed.
The SPAR branded stores remain at the core of our offering: a format that is well-suited to urban and non-urban markets in South Africa, while being the driving format for countries such as Botswana and Zambia. Refurbished stores added to positive consumer experiences and supported turnover growth despite very challenging trading conditions.
KWIKSPAR is experiencing challenges in some areas where it has been contested by a growing number of forecourts, while higher pricing means that it is no longer the first choice for month-end shoppers.
The SPAR Express format is still being embedded and is showing promising volume growth and market uptake. Great looking stores with expanded offerings are becoming competitive and are attracting new business.
SPAR Mini was piloted in the Lowveld last year, and is still in a testing phase. It takes the form of a small satellite or extension store near the main retail store, offering a limited fresh food offering grocery range while relying on the main store for systems and replenishment support.
Our North Rand distribution area now has the highest concentration of Pharmacy at SPAR stores and a dedicated focus on developing black retailers for this format. Pharmacy at SPAR introduced its first incentive competition in 2018, based on S Buys loyalty, own brand support, and participation in various initiatives. There is a significant opportunity to promote this store format to independent pharmacists and expand the dedicated supply to SPAR pharmacies through S Buys. Read more in the case study on S Buys.
TOPS at SPAR continues to be a star performer. Sales numbers confirm that consumers identify with this brand and remain loyal. Craft beverages continue driving growth especially in the gin category.
Build it arranged its first retail convention with over 800 attendees. At the convention new store formats (Build it PLUS and DIY) were launched in addition to a full brand refresh. This will provide impetus for improving the Build it store offering, enable clearer segmentation of the offer by store format type and introduce a new modern look and feel. The intention is to offer consumers a more diverse range of products and service options. Build it completed its loyalty card pilot and will start rolling out the programme to all stores. Although the broader rollout of the TrenDIY format was discontinued, it remains successful in specific locations.
Sales of cement experienced further volume declines due to independent cement blenders entering the market. The Build it house brand showed pleasant growth. Overall, there has not been a noticeable change in consumer behaviour other than an increase in credit sales during the year. There has been a slowdown in project sales through our contractor client base, with reports from smaller contractors that construction decisions are delayed due to uncertainty regarding land expropriation.
The SaveMor group of stores continues to offer a compelling value proposition for consumers, and an equally attractive entry point for new black retailers making their first investment. These stores have lower capital investment requirements and focus on active cost management. Although new store growth was muted this year, there is consistent support for this format.
The group took ownership of 7 additional corporate stores in 2018 and disposed of 4 stores. SPAR acquires these stores as they constitute strategically important sites. These stores are often refurbished and then sold to new retailers. In the meantime, they offer the group a unique opportunity to offer practical retail training and serve as a testing group for experimental products and services.
Retail support priorities
Retailers were under pressure this year in terms of growth and profitability, but were also challenged by crime, labour and community unrest. Cash flow management was a specific concern for many retailers.
We launched numerous retail support projects involving specialised and store-specific marketing initiatives, refinancing options, strategic partnerships, and developments of new businesses such as the secondary TOPS initiative. There has also been a lot of work done around redeveloping stores to keep these relevant and attractive.
We continue supporting retailers in terms of recruitment, training, and IT systems, with new models or programmes being launched throughout the year. A highlight was Build it’s launch of a leadership development programme with 12 senior managers from Build it stores.
Specific focus by the retail teams on developing and implementing a growth plan per store brought fresh perspectives in terms of key opportunities and threats, a better understanding of financial indicators and the setting of meaningful action plans.
New product development and house brands
Our focus on the development of SPAR house brands continues to grow momentum as these products provide value for money for consumers under financial stress. Sales of SPAR branded products increased by 5.8% to R8.5 billion (2017: R8.0 billion), well ahead of growth in other wholesale categories.
The new Country Value private label brand offers affordable value in the bakery and produce departments.
SPAR Steak CO., with its range of the finest Class-A beef cuts, and SPAR Smart Butcher, consisting of spices, casings and marinades, were launched. These have been well supported by retailers and delivered solid new business income. Smart Baker was launched late in the financial year with good growth expected in the next financial year.
Our home-meal replacement lines, Chicka Chicken and Smart Chef, delivered consistent growth. McCoy Pie, launched in 2017, made excellent progress.
Given the consumer demand for gin and vodka we have listed several craft variants, including vodka flavour lines.
Momentum for SPAR Rewards
The SPAR Rewards programme is working well, as consumers enjoy the benefit of free purchases and preferential treatment in competitions. We have been able to promote baskets of goods catering to all market segments with substantial saving for consumers. The combination of instant rewards and accumulated benefits also continue to attract new members. At store level, retailers are experiencing additional sales driven by the Text Me system, as these can be targeted for high impact.
The TOPS at SPAR awards launched last year showed monthly growth and will gain further momentum with increased visibility through neck tags and stickers.
|2017 focus area||Examples of progress and challenges during 2018|
|Organic growth through refurbishments and store format optimisation||
Organic growth was dependent on whether investments were cost-saving or retail-sales driven. Many retailers delayed investment due to uncertainty and low confidence in growth prospects. Stores that invested to gain retail sales experienced growth compared to their sales history prior to the investments. On the cost savings side, we achieved energy consumption savings.
Refurbishments included upgrades to the look and feel of stores, improved offerings and a dedicated focus on service areas. We aim to provide consumers with a competitive shopping experience.
Refurbishments of Build it stores were well received by consumers with more impact expected in the next financial year. The launch of the new store formats and a loyalty programme will further drive organic growth.
|Success of retailers and distribution centres through driving promotions, collaborating with suppliers, and building loyalty through promotions||
SPAR’s 55th birthday celebration delivered good promotional sales growth nationally.
The success of Super Saturday and deep cut one-day promotions in January, June and September involved supplier products with significant SPAR rewards redemption values.
At Build it, the focus was on price and quality engagements with suppliers with the intent to change consumer perceptions and improve retail buying patterns. Promotions are a secondary driver for loyalty.
|Focus on increased local sourcing through the rollout of the emerging farmer hubs||
To date, two farmer hubs have been rolled out with Mopani servicing stores in Lowveld and North Rand and Malelane servicing Lowveld stores. A third hub is expected to be opened in the KwaZulu-Natal distribution centre area, with more in development. Read more in the case study on emerging farmers.