Spar enters pharma space

Johannesburg – Wholesale group Spar [JSE:SPP] will launch a self-branded pharmacy division within its own supermarkets in June, CEO Wayne Hook said on Wednesday.     

Speaking after the release of the group's interim results to March 2010, Hook said the new division - to be branded Pharmacy at Spar - formed part of Spar's growth plans, including a conservative move into Africa.  

Spar already has 12 pharmacies in some of its retail stores. Hook said those pharmacies will be re-branded into Pharmacy at Spar. The new brand will be piloted in KwaZulu-Natal this year, and if successful will be rolled out throughout the country.

In this move, Spar joins its peers Shoprite, Pick n Pay and Woolworths who have been growing their pharmacy networks within their stores.    

Over the interim period, Spar reported turnover growth of 8.8% to R17bn while headline earnings per share were 14.7% up at 278.1c. It declared an interim distribution of 140 cents per share, up 14.8% from a year ago.

Hook described the results as "surprisingly pleasing" in a low food inflation environment, which averaged about 2% within the group over the period. He said the performance was due to stringent cost management and lower fuel prices, which brought down the group's delivery costs by 3% from last year.        

"It's an extremely competitive environment. Everybody is fighting to protect their market share," said Hook. "Though we're not where we would have wanted to be I'm quite pleased with the results. I think we did a great job in controlling our costs." 

Cadiz Asset Management portfolio manager Warren Buys agreed with Hook's opinion. "Operationally, Spar is being run very well as is evidenced by their low cost growth," he said.

The liquor division Tops at Spar continues to show growth potential, with 28 new stores opened over the six-month period. According to Hook, the ideal situation would be to have a Tops outlet in about 80% of the group's supermarkets. 

Buys said the Tops expansion is a great opportunity that could help boost Spar's margin. "I think Spar is expanding in the right areas, it needs to keep an eye on costs and make sure it has good sites," said Buys.  

In a move that may signal a rebound in retailers of durable goods, Spar's building material division Build It posted 13.9% revenue growth to R1.55bn. Hook said this was partly due to aggressive marketing in the division.   

"Massmart [which owns Builders Warehouse and Builders Trade Depot] also had very good performance in their building division; this could be the very early signs of durable goods rebounding. However, we would need more data to confirm this," said Buys.  

Spar has also moved into the wholesale space for the Build It division, leasing a distribution warehouse in Durban which will soon commence sourcing product for direct supply to Build it retailers with a range of building hardware. Hook estimated that over the next few years the facility will be able to supply about 15% of retailers' product requirements directly, delivering benefits to all stakeholders.

"This new venture will improve pricing to the consumer and will provide margin opportunities for retailers and the group's distribution centres," said Hook.