Spar Group plans to focus on South Africa, exit Poland to cut debt

By Janice Kew

Spar Group Ltd., South Africa’s second-largest grocer by revenue, plans to cut debt and focus on its home market after exiting Poland this year.

The company, which is in talks to restructure its obligations, expects withdrawing from the loss-making Polish unit will free up about 500 million rand ($27 million) of earnings a year. Spar has 10 billion rand of debt — largely euro-denominated — with about 250 million rand due this year.

“What we should be doing as all corporates, and Spar hasn’t been great at this in the past, is looking at our capital-allocation policy and making sure that is well thought through, particularly when you are funding expansion,” Chief Executive Officer Angelo Swartz told reporters in Johannesburg on Thursday.

The exit from its smallest market will help the retailer focus on South Africa, which accounts for more than 60% of its revenue. Spar needs to take on rivals including Shoprite Holdings Ltd. and Pick n Pay Stores Ltd., which are transforming their food business into well-defined premium and discount units — a strategy it currently lacks.

“We have found ourselves at a crossroads,” the CEO said. With economic inequality in South Africa rising “at a rapid pace, what that’s meant from a retail perspective is that it tended to favor brands that were a lot more distinct,” he said.

Spar’s has so far tried to cover both the high and lower end of the market with one brand, he said.

In South Africa, Spar is also interested in expanding in baby and pet stores, among other adjacent categories that Swartz declined to identify.

Swartz was appointed to his post in October with a mandate to strengthen the retailer after top executives resigned over governance issues.

In November the company, which supports a network of independent retailers who trade under its brand through its warehousing and distribution business, halted its dividend and reported a 47% fall in full-year operating profit.

The decline in earnings has seen Spar’s shares slump 24% this year, compared with a 2.6% drop on the Johannesburg bourse’s six-member personal care and grocery-store index.