Nompumelelo Magwaza
THE SLOW growth in the South African economy is making the new chief executive of the Spar Group, Graham O’Connor, feel “nervous” but hopeful at the same time that food retailers will remain resilient as food is a necessity.
In an interview yesterday, he counted unemployment, the effects of the collapse of African Bank, inflation and labour strikes as some of the things that were concerning to the retail industry.
However, despite all these negative factors, he said, consumers had not cut back on their basket size in groceries.
“The volumes have slightly increased and the basket size remained fairly the same,” O’Connor said.
As much as he felt bearish about consumer confidence and spending patterns, Spar’s new European acquisition of the BWG Group comforted him. Last month Spar, which is also a wholesale distributor, announced plans to acquire an 80 percent stake in the BWG Group, a retail business with the same model based in Ireland and south-west England.
“The market in Ireland has taken a nice uplift, we are very fortunate to be coming in when things are looking better,” O’Connor explained.
The Irish economy took a nosedive in 2008, during which the property market dropped by as much as 80 percent. “The economy is now bouncing back, employment is gaining momentum with gross domestic product expected to grow by 3.5 percent.”
The BWG Group services more than 1 100 stores, including 100 company-owned outlets. It also owns the Spar brand in Ireland and south-west England, with approximately 700 Spar stores and an estimated 35 percent of the Irish convenience store market.
O’Connor agreed that the South African retail market was saturated and as a result, Spar had opened fewer stores last year than its competitors.
He said Spar’s franchisees were under pressure and the group was assisting where necessary. “Pressure on the consumer has been tempered by the rise in inflation and other pressures experienced by customers.”
Spar owns eight local stores while the rest are franchised. The retailer is also taking a second look at its franchise model strategy.
“Historically we would take corporate stores because they were in trouble and needed assistance. Going forward we are relooking at the strategy in terms of what we require from the retailer division.”
He was quick to say that Spar was not planning to go on a big acquisition spree to try to buy back the franchised stores.
Like many local retailers, Spar also has plans to expand into countries elsewhere in Africa, but “this move is proving to be more difficult and we hope that something will materialise in due course. We will go slowly into Africa, we are not going [to] rush our expansions yet,” O’Connor said.
Spar has felt pressure on its Build It unit, which sells building materials and home renovation products.
“On Build It side we are taking pressure, it has been a tough market and has been affected by both the mining and metalworkers’ strikes earlier this year.”
Liquor chain Tops remained a great profit contributor to the group, with about 600 stores.
The retailer’s shares closed 1.07 percent up at R133.21.