Spar aims at affluent shoppers, but is it too late?

This move comes as rivals Woolworths and Checkers continue to steal market share as they both push for a greater share of the upmarket segment.

Retailer Spar has announced that it will open its first “premium” store targeting more affluent customers in around April 2025, after new CEO Angelo Swartz laid out this plan about a year prior. It has a total of three or four such stores planned for next year.

This move comes as rivals Woolworths and Checkers continue to steal market share as they both push for a greater share of the upmarket segment. This is presumably mostly being taken from Pick n Pay and Spar.

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Spar made specific mention of “increased competitor activity” in its results for the 2024 financial year (to end September). Checkers Sixty60 has surely been one of the biggest impacts as it specifically targets the convenience occasion.

Quite how it manages to do this while retaining the rest of its footprint in the standard Spar supermarket format remains to be seen.

Best of both?

Checkers, however, has shown that it can successfully trade in what is effectively two very different formats – ‘vanilla’ supermarkets for the middle market and its newer FreshX format for more affluent areas, where fresh produce is heroed and the stores include offerings such as Kauai, Krispy Kreme or Starbucks.

Spar has, by and large, traded from a fairly standard format. Sure, there are new Superspars, such as the Salta store at the new centre in Umdloti, that are acres ahead of any other Spar (and most other supermarkets) – it has a specialist meat counter, in-store pizza oven, sushi bar and florist. However, this is seemingly not quite what Swartz’s “premium” store will look like.

It is opening these new fancier stores while also trying to simplify its offering and formats, given that it trades under the Spar, Superspar, Kwikspar, SaveMor and Spar Express banners.

It has said that while that project is continuing, it will focus on building out a niche offering (Swartz’s stores targeting affluent shoppers) and a discount offering (by refining the SaveMor model and rolling this out aggressively).

The affluent and lower income segments are where the growth is coming from in South Africa; the middle market is battling.

Listen/read: Not all doom and gloom: Tracking middle class consumers in 2024

This is evident from the results of other retailers (such as Pick n Pay and the Shoprite Group) as well as banks and insurers. Even Spar in its 2024 financial results highlighted the strong performance of SaveMor.

This move to competing at the upper end of the market is trickier than with Woolies, Checkers (and even Pick n Pay) as the Spar model relies on independent retailers who are voluntary members of the guild. There are incentives for the retailers to source their stock from Spar (wholesale), but they are also able to source independently.

This means that Spar would need to rely on the retailer to invest their money in the store fit-out (in the same way that a franchisor would lean on a franchisee). There will likely be some sort of rebate in place to reimburse the store owner for their additional investment.

The affluent …

The real question is whether or not it’s too late for Spar to even play in this space. Of course, there are suburbs and markets – particularly in its home turf of KwaZulu-Natal – where it holds a strong position.

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This is almost certainly an attempt to defend those markets as Woolies and Checkers continue to make inroads.

Four stores next year and maybe a few more the year after takes you to 10. That’s hardly enough to move the needle and it’s likely that these stores for affluent customers never will.

But they will add, incrementally, to the top line (and to profits).

The lower-income market

The far more interesting and impactful move is to double down on its SaveMor format. It has fewer than 100 of these currently.

Turnover growth is in the “double digits” across this division.

It’s a mystery why it took Spar this long to realise the opportunity.

It has said that almost half of its sales are from rural communities, which implies SaveMor as well as Spar in smaller towns.

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The only problem is that Shoprite has realised this too with its Usave format, and Pick n Pay’s Boxer continues to streak ahead. Shoprite wants to double its Usave base to 1 000 stores in the next five years. Pick n Pay’s Boxer aims to double its footprint in the next six to seven games. It’s going to be an almighty fight.

Read: Shoprite continues to dominate Inside PnP’s plan to double the size of Boxer in five years Should you buy Boxer shares or get exposure cheaper via PnP?

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