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Spar’s first-half revenue was up 21.1 percent to R13.06 billion compared with a year ago, outpacing a rise by rival Pick n Pay, as competition for the shrinking consumer wallet intensified, the food distributor said yesterday.

May 15, 2008

By Tom Robbins

Cape Town – Spar’s first-half revenue was up 21.1 percent to R13.06 billion compared with a year ago, outpacing a rise by rival Pick n Pay, as competition for the shrinking consumer wallet intensified, the food distributor said yesterday.

Pick n Pay revenue in the half-year to February was up 14.3 percent to R24.73 billion. Spar’s figures were for the six months to March.

Wayne Hook, the chief executive of Spar, said volume sales at stores open longer than a year were up about 4.7 percent after stripping out store inflation of 10.3 percent.

Pick n Pay said same-store volume sales for the year to February had been “flat”.

Hook said Spar had taken a “bit” of market share as it benefited from stores located close to rising black consumer markets and upgrades to stores by owners. It does not own stores.

Net profit was up 28.9 percent to R338 million, rising by more than the 21.1 percent climb in revenue growth and on the high side of its own expectations.

Investors will be rewarded with a 37.9 percent rise in the dividend to R1 a share.

The economy would tighten further, said Hook. But the company remained positive that over the medium term and beyond, the black middle class would continue to grow.

But the big question was when food inflation would ease off. For now, Chinese and Indian demand was putting pressure on supply.

Meanwhile, Wal-Mart, the world’s biggest retailer by sales, is benefiting in the US from consumers buying down to its lower prices – despite the additional fuel costs needed to drive to the company’s destination stores.

Hook said Spar had noticed no change in shopping patterns at its different supermarket formats. Kwikspars, located in residential areas and on busy transport routes, have higher prices than big-format Superspars that often require longer consumer shopping trips.

Abri du Plessis, the chief investment officer at Gryphon Asset Management, said Spar was benefiting from its strong footprint of stores close to where people lived.

This, coupled with the fact that Spar distribution focused on basic food lines, made the company more defensive to a downturn than other food retailers, Du Plessis said.

Many luxury foods were sourced from outside suppliers by Spar store owners.

The group said it would continue with “an ambitious store opening schedule for the rest of the financial year”, adding to the 817 Spar branded stores.

Since last year, sales at Spar’s fast-growing hardware chain Build It had experienced “a slowdown in building activity”, crimping half-year revenue growth to 25.8 percent. Turnover was R1.1 billion.

But the other young format, the Tops liquor chain, had in the past few months become the country’s biggest alcohol retailer by turnover, putting it ahead of Massmart’s Makro, Spar said.