For a long while it seemed Spar had achieved something no other South African retailer had managed to do. From a strong home base, starting in 2014, it made hefty international acquisitions and appeared not to be doing too badly at all with them.
Of course, it wasn’t all good. Along with the three-fold increase in turnover and an operating profit that more than doubled, there was a squeeze on margins. By 2020, operating profit margin was down to 2.5%, from the 3.3% it had been ahead of the acquisition spree. And the once debt-free group was now riddled with it.
But compared to the other train wrecks — Woolworths and David Jones, Pick n Pay and Franklins, Famous Brands and Gourmet Burger Kitchen, Truworths and Office, Brait and New Look, Steinhoff and almost everything — Spar was looking pretty good.
And in those early heady days, debt and a temporary squeeze on margins didn’t seem too much of a price to pay for the significantly broadened geographic and currency exposure Spar’s acquisitions had achieved.
Even by early 2022, the full extent of what was going on in Spar was not evident to outsiders, not even to the most astute shareholders. The all-important relationship with independent retailers was taking strain, as the now debt-burdened Spar looked for ways to ease the pressure caused by its international ventures. Loading pressure on its independent retailers seemed an easy option. Prices charged to retailers were upped, payment terms squeezed, rebates and discounts reviewed.
Had shareholders spotted what was really going on at this early stage, it might have been possible to correct course before too much damage was caused.
Instead, Spar rumbled from one disaster to another, pausing in 2023 for a change of leadership amid a huge governance scandal, before heading on towards what currently can only be described as existential territory. The group now seems constantly to be just one own goal away from the grim prospect of extinction.
Far from being a comparative winner on the global stage, Spar’s international acquisition spree threatened the group’s very existence.
In a recently released excoriating report, Zwelakhe Mnguni, CIO of Benguela Global Fund Managers, says Spar had been a cherished core holding in its portfolio.
“It was a model of capital efficiency: an asset-light wholesale juggernaut that empowered passionate, independent entrepreneurs to defeat corporate grocery chains on the unforgiving street corners of South Africa. Spar did not just compete; it dominated the convenience and fresh foods niche.
“By operating as a voluntary buying guild rather than a rigid corporate master, it converted revenues into distributed dividends with spectacular cash conversion efficiency, requiring minimal capital expenditure and using debt sparingly.”
That was all about to change.
In no other case of international expansion, except the complex Steinhoff story, has the existence of the South African home company been threatened. In most cases it was “just” a matter of several billion rand of value being destroyed. Things went further at Spar.
In August 2014, just seven months after taking the top job, CEO Graham O’Connor signed a deal to purchase 80% of BWG, which runs the Spar business in Ireland. It was the beginning of a whole new world for Spar and its shareholders.
It’s worth bearing in mind that the group that former CEO Wayne Hook handed over to O’Connor in January 2014 was one of the four top retailers in Southern Africa, alongside heavyweights Shoprite, Pick n Pay and Woolworths.
For the financial year to end-September 2013, it had reported revenue of R47.8bn and operating profit of R1.6bn, with an impressive margin of 3.3%. A generous dividend of 485c a share was comfortably supported by headline earnings of 694.8c. There was virtually no debt on the balance sheet.
Other vital signs reflecting the group’s outstanding strength were the 39.6% return on equity and 51.8% return on net assets. At the end of September 2013, Spar had a market capitalisation of R20.9bn. As Mnguni says, it was truly a quality investment.
Buoyed by investors’ enthusiasm for the Irish deal, O’Connor and his team evidently felt they could do no wrong on the international stage.
Until, that is, Spar hit what Mnguni describes as the competence drift. “Between 2014 and 2019, a management team and board with no meaningful offshore retail operating experience acquired businesses in Ireland, Switzerland, Poland, funding the spree and its losses with debt.”
After Ireland in 2014 came the acquisition of Spar Holdings in Switzerland. Spar spent R690m to purchase an initial 60% in 2016 and R920m for the remaining 40% in 2021. In 2019 came the acquisition of Polish retail chain Piotr i Pawel. Though much cheaper than the Swiss and Irish deals, the Polish acquisition added billions of rand in operational liabilities and debt.
Investors seemed encouraged by O’Connor’s strategy of paying a minimal purchase price for initial stakes in the foreign businesses, presumably believing this would limit the potential downside and avoid the disasters suffered by its peers. They seemed oblivious to the fact that there was a reason for the low purchase price. The businesses were in trouble.
The initial 80% of the Irish business had a price tag of €55m, paid for with a short-term loan of R790m, which seemed like a great bargain at the time. Overlooked was the fact that Spar South Africa was essentially rescuing the Irish business from the banks.
Remarkably, the deal included Spar South Africa taking on responsibility for all the Irish debt, much of which had been raised by the Irish owners (led by Leo Crawford, chair of Spar International) in 2006 when they bought the business. What a win it was for Crawford and the Irish banks.
By 2020 O’Connor had paid almost €100m for the remaining 20% in terms of an agreement in 2014. This was despite the fact that, while it bulked up the South African figures, the Irish business made little contribution to the bottom line.
The group now had hefty exposure to European economies and their currencies. Shareholders seemed delighted. The share price had shot up when the Irish deal was first announced, from R129 to around R182. Subsequent deals saw the share reach a high of R220 in February 2018, taking the group’s market cap to R42bn.
However, presumably reflecting some investor hesitation, by the end of 2020 the earnings multiple had slipped to 16.7 from 19.7 in 2015. The market cap had eased back to R36.5bn. Still, the share price was trading within R20 of R200, way above the R120 level at which the European spending spree had started.
By 2022, Southern Africa accounted for just 63% of the R124bn turnover and 76% of group operating profit.
So much for the good news. The bad news was that this came at a cost. From being virtually debt-free in 2014, by end-September 2022 Spar was loaded with R7.1bn of long-term borrowings, almost all of which related to the international shopping spree.
Around mid-2022 there were signs that investors were getting anxious. The drop in the earnings multiple became steeper, reaching just 11.8 by year-end and taking market cap down to R27.6bn — not far off the level at which the spree had commenced.
As Mnguni mentions, operating losses in Poland alone surpassed R500m annually, made worse by huge lease liabilities and legal provisions. “Head office repeatedly funded these shortfalls, diverting cash that could have supported the South African core or been returned to shareholders.”
Mnguni reminds us of the bill. In FY2025 the group reported a loss of R5.1bn, driven by a R6.1bn loss in discontinued operations. Exiting Poland required a R2.72bn recapitalisation, which settled the group’s external debt of R1.96bn, against R185m received. Switzerland returned Sf46.5m of equity value on the Sf100.8m invested, with the buyer assuming about R2.7bn of third-party debt and Spar still paying out R683m on exit. The UK was impaired by R1.12bn.
Of course it wasn’t only about economic costs. While executives were focusing on European skirmishes, the group’s crown jewel back in South Africa had begun to lose its shine.
“Head office executives, comfortably ensconced in airconditioned suites, dictated technology choices and rigid mandates that strained the very guild structure on which Spar was built,” says Mnguni.
“This created failed delivery logistics and fractured agreements with independent street-level retailers, who faced real and unrelenting competition from formats such as Checkers Sixty60.”
The February 2023 rollout of the SAP integrated data management system demonstrated how wide the gap between leadership and independent retailers had become. Remarkably, Spar head office appeared to have no clue how ill-prepared the KwaZulu-Natal distribution centre was for a huge systems overhaul.
The gap was also evident in Spar’s shrinking share of the South African grocery market. In 2014, with roughly 28%, it was right up there with Pick n Pay’s 35% and Shoprite’s 32%. Today, Spar is clinging to a 15% share of the market. Even if there are quibbles about the precise figures, the direction of travel is unquestionable.
Alec Abraham, senior analyst at Otto1890, says it’s as though Spar management “had spent six years not noticing what was going on in its backyard”. Most chilling was that almost four of those six years were under a leadership team sent in to rescue Spar.
Even CEO Reeza Isaacs, appointed in March 2026, acknowledges that the grimness of the recent interim results was due to own goals more than tough operating conditions. In the six months to end-March 2026, operating profit plunged 72.6%, paring the operating margin to 1%, against the 3.3% margin in 2013.
The share price is now floating around R49 for a market cap of just under R10bn — half of what it was back in September 2013, before the board dragged the company off to Europe.
Today, as Mnguni says, Spar stands as a cautionary tale of how offshore hubris can paralyse a high-return domestic operation, trigger a balance sheet crisis, alienate independent retailers and shatter a legacy built over decades.