Spar Sees Muted Store Growth as South African Economy Stalls

(Bloomberg) — Spar Group Ltd. expects muted store growth in the next year as South Africa’s second-largest grocer by revenue seeks to focus on restructuring the property portfolio in its home market as it also prepares to sell its Swiss and UK businesses.

Rapid expansion of retail space in South Africa has raised questions about sustainability, particularly in light of an economy whose growth is slowing and narrowly avoided contraction in the first quarter. The National Treasury last month lowered its forecast for annual expansion in gross domestic product over the next three years for the continent’s biggest economy. 

“Ultimately, retailers always need to make sure that they’re opening quality stores,” Chief Executive Officer Angelo Swartz said in an interview Wednesday. “At the rate at which retail stores are opening in this country, it’s hard to see that all of them will be sustainable.”

Sean Summers, the head of rival Pick n Pay Stores Ltd., recently said he too is concerned local retailers are opening too many new stores.

Still, there are opportunities to gain market share in parts of South Africa that have yet to rely on formal retailers, Swartz said. The Durban-based company is also expanding its online offering.

With the sale of Spar Switzerland and Appleby Westward Group in the UK, it wants to see the Spar brand remain in those countries, Swartz said. Group operating profit in the six months through March 28 rose 1.6% to 1.46 billion rand ($82 million) from a year earlier, it reported.

The stock rose 2.9% as of 4:04 p.m. in Johannesburg, the best performer on the seven-member FTSE/JSE Personal Care, Drug and Grocery Stores Index. That pared its drop this year to 21%.

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