South Africa's SPAR lifts turnover but margins hit by promotions, rising costs

By Nqobile Dludla

JOHANNESBURG, Feb 23 (Reuters) - South Africa's SPAR Group SPPJ.J said on Monday its wholesale turnover rose in the first 18 weeks of the financial year, as it stepped up promotions in a fiercely competitive trading environment marked by low food inflation and deflation in several categories.

The grocery retailer reported a 2.1% rise in wholesale turnover from continuing operations in the 18 weeks to January 30. Wholesale sales in Southern Africa recorded muted growth of 0.9%, with grocery and liquor's growth of 0.8% impacted by a softer October.

Retail sales for the period rose 1.7%, with South Africa posting 1.9% growth.

SPAR said it had "deliberately intensified" promotional activity to support retailers and protect volumes as consumers remain under strain and as price competition among grocers deepens.

But the strategy, together with unfavourable sales mix, and continued investment in loyalty and margin‑recovery initiatives in KwaZulu‑Natal province, weighed on gross profit margins in Southern Africa.

By 0941 GMT, shares were 4.80% lower at 79.79 rand.

South Africa's grocery retailers are engaged in intense promotional activity as they compete to draw in cash‑strapped consumers.

Market leader Shoprite SHPJ.J continues to outperform the broader sector, with its value-oriented pricing bringing more shoppers into both its premium and budget formats.

By contrast, third‑largest retailer Pick n Pay PIKJ.J - still in the midst of a turnaround - is struggling to deliver meaningful sales growth as it shutters underperforming stores or converts some to other brand formats.

SPAR also confirmed on Monday that it had been served with a summons relating to alleged claims arising from the SAP implementation. The current amount claimed significantly exceeds the initial claim of 5 million rand ($312,924).

SPAR said it was still managing the effects of its troubled SAP implementation at its KwaZulu‑Natal (KZN) distribution centre, which caused major disruptions and contributed to substantial turnover and profit declines in prior years.

"To date, all KZN retailers affected during the early SAP implementation period, except for the claimant and one additional retailer, have reached amicable settlements with the Group," SPAR said.

($1 = 15.9783 rand)