Spar Group moves into the branded pharmacy market

The Spar Pharmacy in Shelley Beach on KwaZulu-Natal's South Coast, is the next step for a company expanding its retail reach. CEO Wayne Hook yesterday would not say how many pharmacies Spar wants to open, but made it clear the expansion would not end with drugstores.

"We want to get the formula working ... and then set ourselves some targets," he said. "We're not about to go into clothes. There's auto parts, home stores, there's a multitude of different opportunities out there."

Spar, with 848 groceries, 439 liquor stores and 253 building materials outlets in its group, is just the latest South African retailer to widen its offering base.

Pick n Pay CEO Nick Badminton last month said the supermarket chain, with just one pharmacy, wanted to introduce clothing ranges in all stores. Shoprite has 100 pharmacies.

Existing pharmacies

Franchisees within the Spar Group already own 12 pharmacies, but Hook said it was too early to say if these would be rebranded as Spar.

"Some are independent totally, some are part of some other group. We don't believe it would be a major problem (to rebrand them). I've got to go and sell it to them," he said.

"While the retail pharmacy business is not a money spinner, it does bring in customers," said Natasha Moolman, a retail analyst at RMB Morgan Stanley.

"There's no doubt pharma pulls feet," Moolman said. "It's not lucrative at the moment - current dispensing regulations don't make it that appealing from a gross margin perspective. The expectation is that will change, but it is something that converts feet quite nicely."

It would not be a big leap for Spar to adapt its "incredibly efficient" logistical infrastructure to a new range of products such as in a retail pharmacy, Moolman said. "They don't have to just distribute food, they can distribute other products to other formats."

Shares, turnover

Separately, Spar shares were trading R1.75, or 2.3%, higher yesterday, after the company reported a 13.2% increase in operating profit for the six months to March, as it opened more stores and benefited from lower fuel prices and reduced bad debt write-off.

Turnover grew 8.8% to R17,5bn in a six-month period Hook described as "probably the toughest in about 15 years". While group inflation was limited to 2% in the aftermath of sharp spikes in commodity prices 18 months ago, labour, which accounts for about half of costs, rose some 9%.

"You start getting squeezed between the two," Hook said. "We've controlled our costs better than I could have hoped for. That's led to a very pleasing performance on the bottom line." There are now signs of higher, albeit limited, price rises coming through, he said.

"We are starting to see some of the people costs, electricity costs, being a driver for some price increases, but with the suppliers under pressure, they are cautious about how much they can pass on."

Source: Business Day