Spar raises competition alarm

"Its competitive out there, we have to keep on upping the game of our independent retailers - we place a huge amount of focus on upgrading stores - opening new stores will also help our business.

"Retail is not complicated it's about basics, it's what you deliver on the floor every day and that's where the consumer measures everybody," Spar CEO Wayne Hook told I-Net Bridge/BusinessLIVE in an interview.

It's no secret that the retail environment is highly competitive, but with the entry of global player Wal-Mart through its 51% stake in Massmart, local players are rolling up their sleeves to defend market share.

Big gun Shoprite in an effort to improve efficiencies and stock availability is spending US$416 million upgrading its distribution centres.

"We're ready to deal with competitors. We will handle Wal-Mart like we handle the others [competitors]," CEO Whitey Basson said.

Even slowcoach Pick n Pay (PIK), in the face of an industry shake-up is in the midst of a massive turnaround strategy involving a specialist category buying organisation and hefty investment in centralised distribution.

"Make no mistake, they are not going to lie down and die. They are going to fight back," Absa Investments analyst Chris Gilmour said of the group's plans.

And it's a good thing the stalwarts are rising to the challenge because Massmart aims to open 100 stores within the next three years, with a target of a 20 billion rand food retail business within five years.

On Wednesday, Spar Group reported a 3.3% rise in full-year profit as low levels of food inflation, along with dampened consumer spending and tough competition weighed.

Diluted headline earnings per share were at 522.8 cents for the year ended September from 506.3 cents a year ago. A final dividend of 235 cents per share was declared, for a total dividend of 377 cents per share, up from the previous year's 362 cents.

The I-Net Bridge consensus forecast was for diluted HEPS of 525.7 cents and a total dividend of 374 cents.

Spar Group's turnover was up 10.4% to R38.5 billion, while operating profit, at R1.4 billion, was 7.8% higher.

According to Hook, food inflation through the group's distribution centers was "pretty muted" during the first half but after a series of increases in fuel prices and services charges, combined with a weakening rand, it kicked into higher gear in the fourth quarter.

Wholesale turnover within the group's liquor division, Tops brand reached R2.6 billion - a 19.9% increase on the previous year, while Build it turnover topped R3.9 billion, which was 18.2% higher than last year.

Meanwhile, turnover within the main Spar franchise itself increased by 8.6% to R31.9 billion.

The company pointed to challenges with its new business initiatives.

The 10 retail stores it purchased over the last year and the new 10,000 square metre Build It imports warehouse in Pinetown is still being bedded down, and Spar is in the process of turning around the retail stores now under its direct management, which lost a combined R29.9 million during the year under review.

Looking ahead, Hook noted that consumers were not out of the woods but that he was positive about the opportunities for the business.

The company said capital expenditure in 2012 would not exceed R190 million.

"R60 million will be spent on IT, and the rest on expansion, replacement, fleets and material handling equipment," Hook said.

The Spar Group will open up to 100 stores in the next financial year, it said.

At 14:57 the company's shares were at R99.89, up 1.93% from its close on Tuesday of R98.