The challenges run a little deeper than choice of CEO …
The Spar Group is in the process of making its most important appointment in easily the last five years, maybe 10.
And it’s not the CEO. CFO Reeza Isaacs has been confirmed in that role following the abrupt exit of CEO Angelo Swartz at the end of February, with former COO Megan Pydigadu moving to the CFO position.
The group has had three CEOs in roughly three years (after chair Mike Bosman stepped in as executive chair in 2023).
Appointment of Spar MD
When updating the market on Sens on 23 February, Isaacs said the wholesaler will be appointing a dedicated MD for the Southern African grocery and liquor business “within the next two months”.
The role will be based in Pinetown, “which will be close to operations” and this “will be an internal appointment”.
The group has three candidates under consideration “who have a combined 100 years [experience] at Spar”.
“So, they bring institutional knowledge, they bring operational capability and deep retailer relationships,” says Isaacs. The appointment is imminent.
Spar needs to get the appointment right
This role is absolutely critical to bridge the gap between the corporate head office (Isaacs and Pydigadu) and the group’s main customers: its retailers.
Swartz spent much of his time being ‘bogged down’ in dealing with retailer partners, some of which he had decade-long relationships with given his previous roles as MD of the Eastern Cape and KwaZulu-Natal divisions – which was incredibly time-consuming.
If Spar gets this appointment right, it will go a long way to improving trust and loyalty from its retailers.
Why is this appointment so ‘absolutely critical’?
Isaacs is many things, but a seasoned retailer he is not.
Pick n Pay’s Sean Summers is a retailer. Shoprite’s Pieter Engelbrecht is a retailer. Even Roy Bagattini of Woolworths is a retailer, albeit more an apparel-focused one.
So too was Richard Brasher (Pick n Pay, and before that Tesco in the UK) a retailer. Shoprite founder Whitey Basson was a retailer.
Immediate past Pick n Pay CEO Pieter Boone, patently, was not.
Isaacs is not a retailer, but a CFO
Isaacs is not a retailer, despite more than 15 years of experience in very senior roles at retailers.
Isaacs is a CFO through and through, and he will play to his strengths.
He will focus on things like ‘capital allocation’, ‘margins’ and make very big-picture decisions in what is not that simple a business.
The group operates two core wholesale and retail businesses in southern Africa and Ireland (along with a joint venture in Sri Lanka).
It has exited (and is exiting), at great cost, its other international operations in Poland, Switzerland and South-West England.
The other big appointment
The second major appointment the group will make is a chief marketing officer (CMO). Isaacs says this is “to reinforce delivery”.
“There will be a renewed focus on a clearly defined competitive customer value proposition built around price competitiveness and improved price perception.”
That the group doesn’t have one is certainly a result of its rather convoluted structure, with seven regions and distribution centres (DCs) in SA.
Chair Bosman admitted at the AGM that the group is also busy with a review of its advertising spending, explaining that advertising in Spar Group “is a relatively complex space because each DC has [an] advertising and marketing budget and [the] central office and the group have marketing budgets and the [Spar] Guild itself has a massive marketing budget and these are all controlled independently”.
A CMO appointment will go a long way to streamlining these efforts.
The tougher call
Bosman said that along with marketing, the group will “be taking another long hard look at our costs because our cost base has bloated and it’s something that is not sustainable for us and we have to tackle it”.
“At the moment our costs are growing faster than our revenue and so we’re aware of this and we’re doing everything we can to line us up and operate on a positive operating leverage, because otherwise [we] are really going to hurt ourselves, we’re going to hurt the shareholders.”
Not even three weeks after taking over as CEO, Spar – under Isaacs – announced a voluntary severance programme in certain parts of its business to “improve operational efficiency and competitiveness”.
It said: “The process does not affect the group’s retailers or services provided to Spar’s retail network.”
The task ahead
The board-rubber-stamped plan (hopefully with tweaks) to get its operating margin to 3% remains a tall order, especially considering that this remains below 2%.
The plan is to fix this from (roughly equally) improvements at its distribution centres, centralisation and efficiency, and expansion of its gross margin plus other income. And there will be an added improvement from incremental growth.
It’s going to need a lot to go right for this to reach 3% from the current 1.75% in FY25.
In February, Issacs admitted that the timeframe for this “recovery” has shifted.
The group may very well get there, but a lot is riding on these next two executive-level appointments …
This article was republished from Moneyweb. Read the original here.