Spar turnaround faces new test after board resignations

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JIMMY MOYAHA: This morning we received the announcement that the Spar Group’s chairperson and deputy chair have both tendered their resignations.

Read: Spar chair and deputy resign with immediate effect

We’re going to look at this in greater detail with senior investment analyst at Anchor Capital, Stephan Erasmus, who joins me on the line now to see what we make of these developments.

Stephan, lovely having you on the show. Thanks so much for taking the time. Very interesting timing of these two resignations, following the abrupt exit of the Spar chief executive officer a little while ago. What do you make of these latest announcements?

STEPHAN ERASMUS: Thanks for having me. Yes, they are keeping us on our toes at Spar, it seems.

I think the moves are probably a step in the right direction.

If you consider the corporate governance concerns – or at least issues that have been raised over the past couple of years – the body representing the largest Spar retailers called for the resignation of the chairperson in May, I believe.

This has kind of been hanging over the board for a while. I think the results of Spar in the first half added more pressure.

And, as you rightly pointed out, the CEO’s resignation wasn’t expected. So put all of that together, and you have a balance sheet that’s under pressure – and these kinds of abrupt changes do happen.

JIMMY MOYAHA: Stephan, can we perhaps take a look at Spar in relation to some of the other retailers in South Africa?

We know that Pick n Pay has been going through its own challenges. Spar, as of the recent set of numbers in the previous reporting period, has confirmed that they’ve exited markets like Poland. They’ve downsized their focus to come back to focusing on the South African market in greater detail.

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Let’s just look at the South African retail landscape, particularly where it relates to the grocery retailers in South Africa. Some are struggling, some are trying to navigate difficult internal problems. And some, like the Shoprite Group, which gave us a trading statement just last week, don’t seem to have any of these problems.

STEPHAN ERASMUS: Yes, it’s quite a variety of situations you’ve got in terms of the investment cases.

I suppose I’ll start with the ones that I prefer.

I would say Shoprite is really a case of I think taking market share at the expense of the likes of Pick n Pay and Spar.

So where they’ve been tripping up, Shoprite has been expanding at quite a rapid rate and taking up market share.

I was having a look at Sixty60’s numbers. Their revenue number is R25 billion. That’s half of Woolworths Food’s revenue, so it is becoming quite a juggernaut in its own right.

Read: Excluding Sixty60, Checkers is stagnant

And then you’ve got Boxer, which also again has been doing quite nicely – really priced for that lower LSM market but expanding nicely into white space opportunity.

And then you have, I suppose, the two kinds of entities that have had their well-publicised problems – Spar and Pick n Pay.

With the Spar Group, unfortunately, today’s events won’t do anything to sort of settle the investment case, I think.

But, as I said, I think it is a step in the right direction in terms of starting afresh with hopefully a chairperson who can get on – or at least with whom the retailers are happy with. That’ll help the Spar investment case.

And then Pick n Pay. They’ve unfortunately deferred their break-even guidance twice. I think it’s now for FY 2029. They are busy going through a Section 189 labour process, which is not ideal for the group. But without that cost base [being] restructured, it’s very difficult to see Pick n Pay return to break even.

So at a very high level that’s my analysis of the different investment cases.

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JIMMY MOYAHA: Stephan, you mentioned that these resignations could be beneficial for the Spar Group. I want to take a look at how a group like Spar then restructures from a governance point of view. We’ve touched on the exits that you’ve seen, we’ve touched on the other challenges that the Spar Group has faced in the past. How then does a restructuring at this point look – or how should it then look if we are to restore investor confidence in the investment case for the Spar Group?

STEPHAN ERASMUS: I think what it comes down to is performance.

At the end of the day, Spar is a wholesaler that supplies independent retailers.

As we’ve seen, the Spar numbers have not been great. By definition the retailers’ numbers haven’t been great either.

So if you can kind of reset the relationship between the wholesaler and the retailers, and you get a chairperson with whom the retailers are happy, et cetera, that immediately changes that relationship.

I think it’s kind of starting with a clean slate. But again, it’s key that the retailers are happy with that appointment.

And I think it’s also quite telling that in the announcement the board made mention that they are looking for skill sets of extensive retail experience as well as independent retail experience. So in a way that is saying, okay, we definitely need more of that kind of skill on our board.

I think the takeaway for me is it’s kind of an opportunity to reset the relationship and try to get into a sort of scenario where both parties are winning.

Because ultimately they do depend on each other. If one does well, the other one does well. So it is in their interest to sort it out, I suppose.

JIMMY MOYAHA: Sudden resignations at the Spar Group are potentially providing an opportunity to reset relationships between the group and its retail network. We’ll have to see if that reset does indeed take place and how the Spar Group moves forward from this point on.

For now, there is interim leadership in place to continue with the business’s day-to-day operations. There’s an interim chair who has over seven years on the Spar board, so the business does still have leadership in various respects. We’ll see how this develops from this point forward.

For now we’ll leave the conversation on that note. Stephan Erasmus, senior investment analyst at Anchor Capital, joined us to look at the resignations at the Spar Group and how those could potentially affect the retailer.

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