Finance Ghost: SPAR needs to make wholesale changes to its business

There are many JSE-listed retailers that have faced intense pressure over the past year. SPAR has been one of the weakest performers, with the share price having more than halved year-to-date. Investors have headed for the exit amid a combination of macroeconomic concerns and company-specific challenges.

The scale of the volatility has been remarkable. With a 52-week high of R111.82 and a low of R37.26(1), SPAR suffered a peak-to-trough decline of more than 66%.

Although the share price recovered modestly from those lows in recent weeks, trading at R41.59 at the time of writing(2), momentum has once again turned negative following the latest update on the group's turnaround progress.

Retail turnarounds are very difficult at the best of times. South African consumers are facing incredible pressure, leaving no room for error in retail execution. To make SPAR’s story even trickier, they have a wholesale model that is unique in the JSE-listed retail landscape — and the company is struggling to make it work in the current environment.

Will SPAR’s differentiating factors pull it through this rough patch, or does the business model have a structural disadvantage in a new era of grocery retail?

A wholesale model only works if retailers believe in it

The relationship between SPAR and its independent retailers sits at the heart of the turnaround story.

Although SPAR is often described as having a franchise model, the truth is somewhat nuanced. This is an independent retailer model that allows store owners to procure products from suppliers outside the SPAR network. This is why SPAR reports a metric called “retailer loyalty” as a measure of the procurement at store level from the wholesaler.

Loyalty must be earned rather than contractually enforced. This is where SPAR’s story has faltered in recent years.

When the supply chain is working efficiently and retailers are happy with the service, they can leverage SPAR's scale while retaining entrepreneurial control of their stores. A clear advantage of the wholesale model. But when there are issues in the supply chain that lead to a loss of trust, then the performance of the wholesaler begins to suffer.

A potentially supportive factor is that the underlying retailers cannot realistically compete in the market if they are sourcing the bulk of their inventory outside the SPAR network. This is why the SPAR Guild wants to see the wholesaler succeed, as there is strong alignment there despite the recently antagonistic relationship between these parties(3).

Put differently, SPAR’s turnaround isn’t just about SAP system implementation or debt covenants, it’s about rebuilding retailer loyalty and treating it as sacrosanct.

Trust is easy to break

A significant example of how SPAR damaged trust with independent retailers was the SAP implementation at the KwaZulu-Natal distribution centre. The operational disruption placed pressure on margins and retailer loyalty in the group's home province.

The timing could hardly have been worse. SPAR found itself managing internal supply chain problems at precisely the same time that competitors were investing aggressively in omnichannel capabilities and strengthening their competitive positions.

This left the independent retailers in a very difficult position, leading to public spats with the board and a lawsuit for related damages. Many store owners have a substantial portion of their wealth tied up in stores that have become extremely difficult to sell, so they are all in this together.

Therein, perhaps, lies the opportunity for a SPAR turnaround; built on the foundation of improved relations with the SPAR Guild.

A collaborative strategy

The latest update from SPAR notes that management and Guild representatives spent a couple of days together to establish a way forward(4). This is a step in the right direction, at least, although actually implementing a turnaround is far easier said than done.

A material element of the turnaround strategy is SPAR2U, the on-demand retail service that has lagged competitors severely. While Checkers Sixty60 has become a household name and the likes of Woolworths and Pick n Pay have launched meaningful competitors, SPAR has been struggling to get meaningful traction.

Part of the new strategy is to pilot a refreshed SPAR2U proposition in December 2026 that is being developed in collaboration with a retail advisory group. This is a particularly important initiative as SPAR’s historical strength in convenience neighbourhood retail has been eroded by the proliferation of digital sales channels.

Another key area to watch is private label products. The independent retailers can procure national brands and niche products anywhere they like, but SPAR-branded goods can only be procured from the wholesaler. Plans to rationalise the SKUs and improve promotional effectiveness could drive higher retailer loyalty.

Margin and efficiency drives

The management team previously highlighted weaknesses that needed to be addressed in SPAR’s promotional strategy, particularly around events like Black Friday(5). If sustainable margins are achieved at store level, they will have look-through benefits for the wholesaler as the health of the store network improves.

Supply chain efficiencies are also in focus, with SPAR paying attention to metrics like cost-per-case and fleet utilisation. This is part of a broader cost discipline strategy across numerous areas including technology and support functions.

SPAR faces a challenging operational recovery process, but the month-on-month gross margin improvement in KZN, highlighted in the announcement, is an example of progress being made.

Progress isn’t the same as prosperity

Management is putting forward a sensible strategy, but investors are still staring down the barrel of FY26 numbers that management expects to underperform FY25. The worst pressure is being felt in the Groceries & Liquor business in Southern Africa, which is the core of the group. News of consistent local currency improvement at BWG in Ireland is only a partial offset to the challenges in Southern Africa.

With slowed sales growth for the 48 weeks ended 28 August 2026 vs the interim performance, the top of SPAR’s income statement is under pressure. But the bigger concern could be in the operating costs line, as SPAR’s wholesale model is heavily skewed towards supply chain costs that are being affected by elevated fuel prices.

Balance sheet struggles – but with some optionality

The stress isn’t just coming through on the income statement. The balance sheet is also feeling it, with higher expected credit losses related to the retailer balances in Southern Africa. This speaks directly to the challenges being experienced by store owners.

The silver lining is that group net debt levels are expected to improve relative to the interim period. There’s also the optionality around the business in Ireland, with some market participants having questioned whether SPAR should dispose of that asset to unlock capital for the turnaround.

The question around Ireland may end up being answered by the banks. For now, SPAR expects to be within its revised covenant limits. But with profitability under pressure, even a reduction in net debt levels may not fully alleviate lender concerns.

The road to December

SPAR expects to release annual results on 4 December 2026.

But before then, the group expects to finalise the appointment of a new chairperson as well as additional non-executive directors. After several years of disruption, governance stability is an important signal to the market. Getting that right could help soften the blow of what will likely be a tough set of results.

With the SPAR Guild having been vocal in its criticism of the wholesale strategy, the narrative may develop further before we even reach December.

Alignment with the Guild is one of the factors that market participants will watch. It’s hard enough to fight external battles in the competitive bloodbath of the local retail market. The turnaround becomes even harder if there are also internal battles.

Disclosure: The Finance Ghost holds a position in SPAR at the time of writing. BROKSTOCK, its employees, representatives or related parties may hold positions in the financial instruments discussed.

(1)    Moneyweb, 30 September 2026

(2)    Google Finance, 30 September 2026

(3)    Spar Guild backs Phil Roux for Spar chair hot seat - Moneyweb

(4)    SPAR SENS Announcement, 28 September 2026

(5)    SENS_20260610_S522540.pdf

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