Spar's recent push into poorer areas had paid off, with con¬sumers in this market continu¬ing to buy up, the food distribu¬tor said yesterday.
The firm has gained market share from competitors, 26.9 per¬cent now compared with 26.4 per¬cent a year ago.
Earlier this week rival Pick 'n Pay announced a move to regain market share from Wool¬worths, at the top end of the market, by sprucing up its fresh and convenience food offering.
Spar chief executive Wayne Hook said: "Five years ago, most of the stores we opened were in middle- and upper-income areas, but now they are in emerging market locations." Hook did not give details.
The firm increased market¬ing costs by 24 percent, upping the ante on advertising spend targeted at the bottom end of the market. It said this was to "work on" a historical price per¬ception, created by the previous dominance of smaller subur¬ban stores, that Spar was more expensive than rivals.
Group sales lifted 27.5 per¬cent to R21.9 billion in the year to September, indicating that sales of food products remained strong despite a significant slowing of growth at furniture and clothing retailers.
Sales of perishables were 4 percent to 5 percent higher than those of dry goods as consumers at the bottom end of the market replaced items such as tinned food with frozen chicken. This was despite the fact that these consumers had been hit by higher fuel prices as well as higher food inflation. Hook expected food prices to rise further.
Abri du Plessis, chief invest¬ment officer at Gryphon Asset Management, said Spar's "store owner-manager model" had al¬lowed it to move quickly into bottom-market locations and higher-income areas.
Because the distributor did not own the stores, it had been a low-risk strategy to move into sites in small towns.
Spar expected favourable conditions to continue next year, "albeit slightly lower levels", as the higher interest rate cycle started to bite.
On the back of expected profit growth, the distributor had relaxed its dividend cover policy, reducing the earnings to dividend ratio from 1.95 to 1.7.
But recently there was some concern about sales growth at its Build It unit, as discre¬tionary spend on do-it-yourself materials was harder hit than food sales by pressure on the consumer's wallet.
The company, which sup¬plies Spar branded supermar¬kets, said: "Internal inflation of between 7 percent and 8 percent meant that the group achieved substantial real growth during 2007."
Referring to volume sales, the firm said its warehouses shipped 14 percent more cases of items such as food and toiletries, to give a total of 137 million cases. Net profit was up 28.3 percent in the year to R523 million, compared with a year ago.
But Spar's move into rural ar¬eas had a downside, as selling a greater number of staple foods led to a small decline in margin. Despite the more recent concern about Build It, sales were up 37.3 percent. Tops liquor stores revenue was up 48.2 percent.
Spar shares gained 0.87 per¬cent yesterday to R57.50.
The food and drug sector increased 0.13 percent.