Struggling Spar Group plans to cut jobs

The Spar Group has announced it will be implementing a voluntary severance programme "in certain areas of the business".

In a voluntary operational update, it says that this forms part of the Group's ongoing focus on improving operational efficiency and competitiveness.

"The Severance Programme is part of a broader reset designed to align the Group's cost base with current trading conditions and to ensure that SPAR is structured appropriately in order to support future sustainable growth."

Spar says this process does not affect the Group's retailers or services provided to its retail network, for which it is focusing on strengthening operational performance.

The announcement comes against the backdrop of the disastrous implementation of an SAP software system at its distribution centre in KwaZulu-Natal, which resulted in an estimated turnover loss of R1.6 billion for the financial year to end-September 2023.

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More recently, Spar underwent a leadership transition with the resignation of CEO Angelo Swartz, which sparked a share dump at the end of February.

Stephen Grootes gets comment from the retail analyst and commentator known as The Finance Ghost (TFG), marking his first interview on The Money Show.

This is one of those cases where every time you think it can't get worse, it does, he remarks.

"I've actually tried to buy into their turnaround and unfortunately been disappointed... It really harks back to just when things started to go wrong for them in Europe, plus it started to go wrong here and then it felt like they were just putting fires out literally everywhere."

When this becomes the case for a company, eventually something has got to give, he says.

The analyst says it all boils down to what is happening in the grocery market.

"Stuff like trying to save costs at head office is fine, but I think it really comes down to what's going on at store level. It is a huge struggle for them at the moment - Spar is a shadow of the business that it once was and they have a lot of work to do to try and fix it."

He doesn't agree with some commentators who see the Spar structure as the core of the problem, in fact extolling the virtues of a franchise business.

"In the new world it could be working against them as we speak, BUT I'm also not 100% sure that it has to work against them. Being differentiated is not a terrible thing."

TFG uses the example of Pick n Pay, which follows a traditional retail model, but feels like a poor version of what Shoprite currently has because PnP, he says, is not executing to the same standard.

On the other hand, with its franchise model, a really great Spar in his opinion remains almost unbeatable, the analyst says.

"They CAN actually do something different: The joy of the franchise model is that they've got people that own these stores who live in the communities they serve or at least know the community very well. A good Spar has probably the best butchery and products that reflect the area and culture that you find it in."

The main reason the franchise model is a problem for Spar right now is because they simply don't have access to sufficient store-level data, he goes on.

"They don't have the ability to layer on a fulfilment engine like Checkers Sixty60 connecting all their stores to customers. Honestly, I think I've seen those SPAR2U vehicles on the road maybe twice, whereas if you throw a stone at the moment you'll hit a Sixty60 driver on a scooter, right?"

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