Could it be that the shock resignations of Spar’s chair and deputy chair — Mike Bosman and Shirley Zinn — will finally repair the retailer’s increasingly bitter relationship with its 1,300 independent store owners?
CEO Reeza Isaacs is evidently keen to mend fences, and quickly.
“Our executive leadership remains firmly focused on supporting you, strengthening our partnership and improving performances across the Spar system,” wrote Isaacs and groceries & liquor SA MD Jerome Jacobs this week in a letter seen by the FM.
And where Bosman had hinted that management was planning to shift the group to a franchise model, the letter stressed that its independent voluntary trading systems remain fundamental to the group’s strategy. “Together we will focus on rebuilding confidence in Spar and improving how we serve our shoppers through our independent retailers.
“Your success is our success. Restoring retailer profitability, strengthening our partnership and delivering tangible value to your stores are at the heart of our turnaround,” wrote Isaacs and Jacobs.
As they see it, the immediate priorities include stronger procurement and sharper pricing; more effective brand and marketing support; improved wholesale and distribution execution; greater support to help retailers manage costs and improve profitability; and continued development of Spar’s retail technology, digital and convenience capabilities.
Existential territory
Time is hardly on Spar’s side. Not only have shareholders, increasingly weary of more than four years of management drama, driven the share price to a 20-year low of just over R40, but consumers are also becoming jaded and moving on to more sparkly offers from Shoprite/Checkers and Woolworths.
Benguela Fund Managers chief investment officer Zwelakhe Mnguni tells the FM that Spar is now moving towards existential territory and must move fast to correct its trajectory, given how unforgiving South Africa’s highly competitive grocery market is.
Mnguni, incidentally, initially backed Bosman’s appointment but wasn’t impressed with the way he executed Spar’s exit from Europe. It was Bosman who had to unwind deals made under his predecessor, Graham O’Connor, who resigned in December 2022.
The group sold off large chunks of international operations on which it had splashed billions between 2014 and 2019. While the disposals were generally deemed necessary and reasonably well executed, the board and head office seemed unaware of mounting pressures on the home front. The crucial relationship between the independent retailers, who carry the Spar signage, and the company was fraying at the seams. That fraying had already begun during O’Connor’s reign when huge amounts of the group’s financial and management resources were poured into international acquisitions.
The home base was overlooked and deprived of the resources needed to maintain a complex system. That Spar head office had lost the plot became evident to all in February 2023 when it attempted to roll out the SAP system at its KwaZulu-Natal distribution centre, seemingly unaware of how ill-prepared it was. It was a disastrous and expensive failure that left the independent retailers in the lurch.
The KZN distribution centre essentially collapsed, forcing retailers to search for alternative sources of supply. While KZN was the SAP hotspot, independent retailers across the country were becoming increasingly agitated by the declining quality of service from Spar HQ. Battles erupted all over the place. And head office seemed unaware or uninterested.
No room for error
Stephan Erasmus, investment analyst at Anchor Capital, says that while the board profile has changed, what hasn’t changed is the group’s strained operating position. “In its first-half results, Spar showed it is operating close to its debt covenant limits, with little room for error,” he says.
The good news is that Spar executives are clearly alert to the need for speedy action. Perhaps even better news is the acknowledgment that Spar management must work with the 1,300 independent retailers, who ultimately determine whether or not the group succeeds. In the 10-plus years since Spar launched its ill-fated and expensive global acquisition spree, this relationship has deteriorated to a level of near-dysfunctionality.
After his appointment in December 2022, hopes that Bosman might rectify this were dashed when it became evident the new chair believed the future of Spar lay in a different business model. In other words, Spar, which is essentially a wholesale and distribution business, was intent on pursuing an operational agenda irrespective of the requirements of its customers, the independent retailers. In this time, the level of arrears climbed to record highs, and the number of troubled stores increased to alarming levels as Spar moved in to take over loss-making businesses. The independent retailers became so frustrated that in May they took the decision to publicly call for Bosman’s resignation.
With Bosman gone, it’s perhaps unsurprising that the Guild, which represents the independent retailers, has confirmed its commitment to working with the Spar group. In an addendum to Isaacs’ and Jacobs’ letter, both parties (the Guild and the group) agree that they “are focused on building confidence in Spar among retailers, employees, suppliers, customers and shareholders and on giving the executive team the platform to deliver”.
That’s encouraging progress. Still, will it be enough? And do they have the time and money to correct the trajectory and claw back market share? Ask any of the larger independent retailers — substantial and long-established players in their own right — and they remain certain Spar has a significant role to play in the South African retail environment. Even on the grocery delivery front currently dominated by Checkers Sixty60.
But if Spar is to deliver on the immediate priorities highlighted by Isaacs and Jacobs, it’s possible a rights issue or another sale of assets is on the horizon.
Erasmus says the board shake-up is a step in the right direction. “Ultimately, Spar is a wholesaler to its independent retailers and therefore exists in a symbiotic relationship.” He tells the FM that the commitment to recruiting directors with direct retail and independent retailer experience is a tacit acknowledgment that the Spar board is in need of more such skills.
According to unconfirmed rumours, the board is attempting to persuade Wayne Hook, a former Spar CEO with an outstanding track record, to return for a nonexecutive stint. Also on the wish list is former CEO Angelo Swartz, who had a strong relationship with many of the group’s independents.
