Spar SA escapes Zim’s doom, gloom

Source: Spar SA escapes Zim’s doom, gloom – DailyNews Live

Gift Phiri      19 November 2016

HARARE – Since the 1960s when it entered the Zimbabwean market, South
African retailer and wholesaler Spar had become a dominant group, getting
a lot of attention across the country for being a good trader, probably
the best in class.

A long-time supermarket chain here, it was more aligned with everyday,
working class neighbourhoods and had a slightly more upscale feel.

But it was perceived as more expensive, with its franchise said to be
costing tens of thousands of dollars, according to franchisees.

It was a high-margin business that helped prop up big profits for the SA
supermarket chain and supported world-beating earning margins.

But in recent years, a growing number of franchisors ditched Spar,
preferring to come up with home-based options, as well as new technologies
in the face of increasing competition from multiple chains.

After ploughing billions and over 49 years, Spar South Africa admitted
defeat last week and announced that it was pulling out of Zimbabwe.

The Spar licence has now been indigenised, transferred to newly formed
company called Spar Zimbabwe, owned 100 percent by local retailers.

Spar SA executives said they were now focusing on the larger businesses in
the region after a damning review of the vast retailer’s Zimbabwe arm,
pulling the plug on the heavily loss-making operations here after noting
its performance was not improving.

The pullout is a rare setback for the globe-trotting JSE-listed retailer,
which has spent much of the past decade planting its red, white and green
flag worldwide. The worldwide Spar organisation comprises 12 331 stores in
35 countries on four continents, boasting 7 million m^2 in sales area, and
currently meets the needs of over 10 million consumers every day.

The expansion of the organisation increased dramatically in the 1990s and
continues now in the new century, yet Spar SA has been forced to exit the
Zimbabwean market, closing its distribution centre here because of the
dramatic economic collapse largely blamed on President Robert Mugabe’s
policies as well as cut-throat competition.

This is the business side of this story.

But there is the emotional and practical side, the community’s side. Spar
had a spirit of sharing, and hopefully the new indigenous group continues
with this tradition. The group was actively involved directly with the
communities within which they operated, investing time, energy and money
into local community projects, including clinics, orphanages, sports
events and schools.

Trouble started when Zimbabwe’s largest conglomerate by revenue, Innscor
Africa Limited, set the scene for a major shake-up in January when it
disposed its interest in the sprawling international business group’s
corporate stores pursuant to Innscor strategy of focussing on core
business.

“At the end of 2015, Innscor sold the six corporate stores and the Spar
licence for Zimbabwe to Darren Lanca, an independent retailer who owned
two stores at the time, Braeside and Montagu,” Terence Yeatman, Spar
Zimbabwe managing director said. “The distribution centre business has
also been wound down by Innscor and has ceased operations.”

The indigenous Spar Zimbabwe retail division now comprises 10 stores,
Braeside, Montagu, Village, Bridge, Golden Stairs, Queensdale, Waterfalls,
Letombo, Helensvale and Mutare.

Spar SA Group chief executive Graham O’Connor said on Wednesday they were
exiting the highly competitive Zimbabwe market, citing a dearth of the
economy.

“The economy was just too tough . . . payment issues, infrastructure
issues, so it was better that we exited,” O’Connor said while presenting
the full year results.

Specialising in groceries, fresh produce, liquor, pharmaceuticals and
building materials, the Spar venture was launched by Adriaan Van Well, a
Dutch wholesaler who believed independent wholesalers and retailers can
achieve more by working together than working alone.

In the late 1950’s, four grocery stores in Salisbury, now Harare, joined
together to form a buying group, one of which was the Divaris Brothers.
They called themselves “The Four Just Men” after British screenwriter
Edgar Wallace’s latest thriller at the time.

After learning of Spar’s launch in South Africa, they decided to apply to
Spar South Africa for a Rhodesian franchise. Vic Taitz and George Divaris
travelled to Johannesburg and met with the directors of Spar South Africa
who agreed to grant the franchise rights to two wholesalers being Pick and
Save in Salisbury and Gordon Brothers in Zimbabwe’s second city of
Bulawayo.

Spar in Rhodesia prospered. But sanctions with South Africa forced the two
wholesalers to seek their own rights directly from Spar International in
1966, making it the 13th country to join Spar’s worldwide expansion.

Over the past 49 years, Spar became one of the largest retailer by sales
revenue in Zimbabwe, setting up 33 locally owned independent retailers
across the country.

The brand gained momentum in Zimbabwe, so did appreciation of the custom
packaging of its owned brands.

But it has now succumbed to fierce competition from rapidly expanding
discounters such as fellow South African retail giant Pick n Pay, which
posted a staggering 81 percent increase in earnings from its Zimbabwean
associate, TM Supermarkets, in the six months to September 30. Pick n Pay
reported a profit before tax of R381 million rand ($27,6 million) in the
half year to August from its Zimbabwe operations.

Fierce competition coupled with an expensive franchise and the Innscor
pullout forced Spar to fragment, amid a fierce battle for control that
emerged amid the arrival of new players and a flurry of mergers and
acquisitions.

It was a dramatic collapse for a group whose Zimbabwe operations posted
$52,8million in revenue just in the year ended June 30, 2015.

Loyalties between the two chains have for long been divided and old
perceptions firmly entrenched, so by the time Spar began making meaningful
changes to the pricing structure, opening new stores with a fresh market
focus and implementing competitive pricing, it was too late.

Industry insiders talk about how Pick n Pay, which  owns 49 percent of TM
Supermarkets, the country’s second largest retail chain, mucked this up,
but the end result was the end of Spar SA, forcing it to announce last
week that it would close its distribution centre.

This has left Zimbabwe with two dominant grocery chains, Pick n Pay and
the biggest retail supermarket chain, OK Zimbabwe Limited, which recorded
a profit after tax profit of $2,3 million for the half year to September
30 2016.

Competition in the Zimbabwe supermarket industry has never been greater.
In addition to traditional grocers, there are now dozens of different
types of retailers attempting to gain their share of the food wallet.

In most communities, the news of SPAR’s closing will be devastating. Gone
is a 49-year-old store, one that filled a hole and a much needed
alternative to those tired stores.

But the indigenous Spar Zimbabwe reassured the public at a press briefing
yesterday that that it will continue trading, “offering everyday low
prices, strong community involvement, quality fresh produce, great product
choice, excellent customer service and world class stores wherever they
operate in Zimbabwe.”

In its market dominance, critics say Spar had become complacent. Frankly,
it became too pricey for weekly shopping.

It has been frustrated, in part, by consumer idiosyncrasies, analysts
reckon.

For consumers, the silver lining has been that competition has forced
domestic rivals to keep their prices low.

Spar’s attempts to woo Zimbabwe’s picky customers and navigate the
country’s labyrinthine distribution system dismally failed.

Spar SA simply failed to survive competition from the myriad supermarket
chains setting shop, said economist Gift Mugano, an expert on Zimbabwe’s
consumer trends.

He said Spar SA’s pullout was surprising given that several foreign firms
have taken advantage of the perfectly competitive and lucrative US dollar
market in Zimbabwe by opening a string of local subsidiaries.

“Retailers are flocking in, the US dollar is lucrative. Pulling out in
such a scenario, I don’t get it. There are limited barriers of entry. It
can only be endogenous factors within the Spar group. It could be largely
due to internal dynamics,” he said.

The market remains penetrable, however.

Buy Zimbabwe economist Kipson Gundani said Spar SA was likely trying to
dodge the bond notes bullet.

Government has been forced to promulgate emergency measures to introduce
bond notes, a surrogate currency that will trade at par with the US
dollar, in a bid to ease a worsening liquidity crunch that has heightened
panic in the domestic economy.