Investors were understandably disappointed at the figures posted lasted week by franchise group Spar Group [JSE:SPP] in its 2011 first half results. Its share took a dive, shedding almost 3%. Under current circumstances perhaps it was too ambitious to expect a solid set of results. The group has been walking a tightrope throughout the recession. It had previously warned of its struggling franchise associates, to the point that last year it started buying back retail outlets from distressed owners who wanted out. CE Wayne Hook spoke in guarded terms when asked about his outlook for the second half. Of course, food inflation will soon start heading north (as is the case elsewhere worldwide). Hook estimates it will be in the region of 6% to 8% towards year-end. But the real trouble is continued weak consumer spending. Though analysts have been saying the worst is over, on the ground consumers are still cautious when opening their purses. The situation has been distorted by unemployment growth, though retrenchments have somehow subsided. In short, it’s still tough out there. Given such iffy conditions, is Spar worth a buy at the moment? The share is perhaps the cheapest of the three major supermarket groups in SA. However, its short-term outlook doesn’t make a strong investment case. Besides difficult market conditions, the group also seems to be slipping into a cost control nightmare. Fuel and electricity costs are a major concern. Plus its investment into the nine retail stores it now owns and commendable entry into building materials wholesaling will take at least a year before yielding any profit. We recommend a hold. Spar has an excellent business model, tried and tested over years. The beauty of a franchise group is that store owners incur their own capital expenditure. Spar built its distribution centres a while ago, which should help it conserve its hard-earned cash in difficult times such as these.