Our new supermarket strategy for South Africa
The 2018 SPAR strategy development process started with the recognition that we needed to develop a strategy that focuses on SPAR supermarkets in South Africa.
Since our previous in-depth strategy development process in 2012, SPAR has transformed in the following manner:
- We acquired new businesses in different territories
- We entered new categories, such as pharmaceuticals
- We had leadership changes
- Our markets evolved through heightened competition, economic and political challenges as well as consumer shifts – driven to a large extent by technological advancements.
Although the board reviewed the strategy annually since 2012, there was a need for a more comprehensive reflection, focusing on driving the retail and wholesale aspects of our business in South Africa. It was also key to involve retailers, particularly the national guild, in the strategy development process.
The strategy review process was underpinned by extensive background research that helped identify key trends, opportunities and challenges, and gave insight into where SPAR could make a real difference in the country.
Key retail trends that we considered:
|Buy local||Global expansion||War on packaging|
|Convenience||Integrated digital solutions||‘Shrink-flation’|
|Health and well-being||Deep discounting||Increased security|
|War on food waste|
These trends are amplified by growth in the informal food economy, the consolidation of formal food system players and the pressure on primary producers – the latter at risk to scale effectively for future demand while complying with increasing legal and audit requirements.
The strategy process was further guided by the Sustainable Development Goals (SDGs) which assisted in defining primary themes for SPAR around equality, poverty reduction, human settlement, food and nutrition, sustainable growth and quality education. Read more about how we align the SPAR values with the SDGs here.
As input into the strategy process, we initiated a stakeholder engagement project that encompassed focused interviews, workshops and team discussion, as well as trade intelligence. Our main interactions were with retailers, the guilds, employees, suppliers and consumers.
The supermarket strategy at a glance
First choice brand in the communities we serve
There was collective agreement that the SPAR vision should remain the same: it continues to highlight our focus on understanding our consumer and recognises that different communities need different things. It also implies a sense of belonging. The vision further confirms that we have a bigger role to play in communities than just selling and making money – it emphasises our culture of caring.
The strategy development process culminated in a board-approved supermarket strategy for South Africa – not a radical change from our previous strategy, but a refinement with a shift in emphasis towards our consumers.
The focus areas detail the key aspects we need to prioritise to deliver our outcomes. They are the foundation stones of the strategy and are closely linked to the vision and outcomes. By developing action plans and indicators according to the focus areas, we create structure around how to achieve our outcomes.
Our short term strategic priorities
Through the strategy development process, we identified the following key priorities for the next 12 months:
- Understand and segment our consumers and retailers based on their various needs
- Review our offerings to both consumers and retailers by segment
- Capture informal market opportunities
- Update voluntary trading model standards and rules to address key challenges that threaten the long-term sustainability of the model
- Actively drive our desired culture
- Design the organisation of the future and commence implementation
- Drive supply chain optimisation and efficiencies
- Drive cold chain management at distribution centre and retail level
Detailed action plans are being developed for each strategic focus area with appropriate key performance indicators and phasing.
Our strategies in other territories
An overarching group strategy will be developed as a next phase, serving to align the strategies in the different territories. Strategies for each format, such as Build it, Pharmacy at SPAR and TOPS at SPAR, will also be developed.
Six strategic plans for Ireland
Currently, BWG works according to a strategic plan 2016 to 2021 aimed at shareholder value creation through six specific plans:
|1. Distribution||Specific imperatives up to now included a strategic review of the BWG supply chain for all channels to stress test distribution and minimise costs. This was followed by optimisation plans for the distribution centres to assess capacity, productivity, and service levels to improve capacity management and reduce working capital. In 2018, a transport optimisation plan was developed to refine asset use and reduce costs.|
|2. Information technology (IT)||The IT plan focuses on more efficient and lower-cost infrastructure upgrades, standardisation and redesign. We developed an e-commerce strategy to address online, mobile and integrated solutions. Further imperatives include software consolidation, social media, and business intelligence capabilities.|
|3. Acquisitions||The acquisition plan is based on growth aspirations, shareholder support and management expertise. Targets were identified and explored while ensuring retention of strategic retail business. A further imperative is the retention and development of strategic categories.|
|4. People||The top imperative for the people plan is to refine the management structure based on the need for succession planning and talent requirements. Further focus areas include the e-learning academy, strengthening the company culture through feedback programmes and training, while ensuring greater productivity and efficiency.|
|5. Property||The property plan is a long-term imperative aimed at enhancing profitability and reducing liabilities. It considers asset valuations, disposals, and the development of an intellectual property management mandate for the business.|
|6. Retail||Our focus is on developing a multi-brand strategy for the different store formats and to drive SPAR as the leader in the convenience market over the long term. The plan also addresses the EUROSPAR brand strategy imperative and considers innovation to grow margins.|
Read about activities supporting these plans for 2018 in the operational report: Focus on Ireland.
Strategic outcomes for Switzerland
SPAR Switzerland adopted a new strategy in February 2017 with the following elements:
|Purpose:||Enable retailers to profitably meet the individual needs of their customers|
|Vision:||Convenience brand of choice for the customers we serve|
|Values:||Trust, passion and entrepreneurship|
The following actions plans shape SPAR Switzerland’s operations toward six outcomes:
|1. The best employees||We aim to motivate and empower employees through our culture, values and processes. We focus on improving communication, providing competitive remuneration, talent management, training and apprenticeships.|
|2. World-class supply chain||We focus on supply chain optimisation through supplier engagement and relationships to reduce costs and increase quality. This includes logistics efficiencies and productivity improvements.|
|3. Customised range||We focus on category management through an assortment geared toward customers. This also informs new product development.|
|4. Competitive pricing||We balance pricing with retailer profitability through marketing and promotions, and by optimising our store portfolio.|
|5. Loved/trusted/believable brand||We focus on targeted sales and marketing activities, including our rewards programme.|
|6. New business growth||We focus on expanding our footprint through new sites and stores, and by using technology.|
Read about activities supporting these plans for 2018 in the operational report: Focus on Switzerland.
The link between strategy, governance and risk
The SPAR board believes there is an inextricable link between strategy, risk, sustainability, and performance management, which is effectively measured and controlled through the enterprise and risk management (ERM) process. The successful implementation of the strategy therefore relies on effective mitigation of strategic risks.
The board, supported by the Risk Committee, implements effective policies and plans to mitigate these risks and to support the company in being ethical and a good corporate citizen.
In developing the strategy and overseeing risk management, the board provides overall guidance and direction, including the relevant approvals and monitoring. The South African executive team and management provide structure for both processes and input into the discussions by considering past performance and a changing operating landscape. Progress against the strategic focus areas and an updated risk register forms part of the quarterly reporting to the board and the relevant committees.
The board’s role in considering and approving strategy includes ethical leadership, which evaluates, for example, the trade-offs between different stakeholders which ensures progress is measured and monitored. To enable the latter, the board approves policies, frameworks and the plans that drive budget allocation.
The risks outlined below have been identified and ranked as the top 12 risks most likely to impact the business. The risk register links key risks to strategic imperatives and identifies key risk indicators that are tracked to determine likelihood and impact. These risks are monitored and managed at board level. To strengthen accountability and mitigate the key risks identified, detailed action plans have been developed, with clearly defined roles and timelines.
The summary below tracks strategic risks, identifies mitigation plans and show the trend movement against a 2016 baseline:
|High inherent risk|
|Medium inherent risk|
|Risk title||Description||Mitigating plans|
Macroeconomic factors may cause a decline in business
Factors include global and macro-economic conditions such as inflation, currency depreciation and unemployment.
|Medium- to long-term mitigation strategies include forward cover and stockpiling fuel. We track and report trends according to indicators and set thresholds, for example, for the Rand exchange rate and the oil price.|
Political instability in SPAR markets may hinder business
National or international political events can cause fundamental shifts in the economic system of the country.
|We receive regular political insights from knowledgeable commentators that assist in creating scenarios to determine the potential impact on our future business.|
Poor individual retailer performance may negatively impact the group
This can have a wide spectrum of impacts, including reputational and financial through subpar stores, price perceptions, store viability, group profitability and efficiency. Further drivers are increasing working capital constraints at retail because of poor financial management by individual retailers. Poor performance includes retailers not involved in the communities they serve in a meaningful and sustainable way, thereby not living the SPAR vision.
We drive increased financial disclosure and benchmarking for retailers while offering training and support.
We actively manage the list of poor-performing retailers per region and identify appropriate and specific action plans to address performance. We have also increased the audit of core retailer (business) processes.
New and existing competition may take market share
This takes the form of aggressive competition including foreign or local new entrants, with expanded domestic competition by current retailers – for example, competing on range, price, and hygiene factors.
We developed plans for all strategic stores and identified market share gaps.We have also developed a clear emerging market strategy for each region.
Loss of retailers and retail stores to competitors
|Competitors target SPAR retailers to buy stores, even with unrealistic or extravagant offers.||We identified unique actions to improve our relationship with each retailer, based on an analysis of each retailer’s specialist support needs. Vulnerable stores are indexed and tracked.|
Poor adherence to and implementation of group initiatives by retailers
|Resistance and lack of buy-in and discipline by some retailers may result in an inability to market our offerings on a national basis, resulting in financial and reputational damage.||We conduct and document robust pilots for all new concepts to act as reference in the rollout to retailers. Regional committees list mandatory initiatives, conduct audits, and report on retail compliance with documented remedial actions for non-compliant retailers.|
The inability to develop new sites may stunt growth
|Acquiring new sites is fundamental to our growth strategy. Barriers include guild approvals, objections by other retailers, and other majors/competitors owning property.||To drive new business, we identified new business champions per region with action plans. We developed a group developer engagement and funding strategy. We also identified retailers per region who have the desire and capacity to own multiple stores.|
Major customer groups may negatively influence the sustainability of the business
|Large groups may have a proportionally large influence on the profitability, reputation, relationships, and standards of specific distribution centres. This might lead to the potential loss of a significant percentage of business.||We identified key risks per major customer group and documented an action plan to address these.|
Disruption of operations may occur due to labour disputes and/or industrial and mass action
|Labour unrest may be caused by a spill over from related industries such as transport, or the unsatisfactory resolution of central bargaining and outsourcing issues or retail strikes with empathy from SPAR employees.||We have identified unique actions to improve relationships with unions and employees, including improving the capacity of shop stewards. We have strike contingency plans detailing responsibilities and expectations. We conduct an annual comprehensive climate survey at all sites.|
Poor data quality and analysis capabilities may prevent effective business intelligence
|The lack of quality data across the group may limit opportunities to optimise business processes, the supply chain and forecasting. It may result in an inability to accommodate business requirements. This is detrimental to performance management.||We conducted an information needs analysis for each function and the development of business intelligence components was prioritised. We continue to drive, through training and other means, the proper use of systems at retail and corporate systems. We implemented of a groupwide data governance programme that introduces governed master data and data quality management.|
The financial model may fail to ensure retailer profitability, thereby jeopardising SPAR’s sustainability
|Retailers may not able to make sustainable and acceptable profits, which threatens the wholesale model. Retail margins are under pressure.||We identified key actions to reduce cost or enhance revenue within retail in the regions. We determine the true cost and profitability for SPAR and retailers across the value chain for a selected basket of goods. We identified key drivers impacting the wholesale/retail model, including the impact of cross-subsidisation and shared costing for retailers and SPAR.|
Transformation issues across all areas may impact the business negatively
Multiple issues around transformation regarding employees, management, ownership, supply chain, enterprise development and retailers, and training and development must be monitored. There are challenges in hiring for skill vs immediate BBBEE requirements.
|We updated our transformation plan based on the new BBBEE Codes and are executing accordingly. We educate retailers on new requirements, such as liquor licensing.|