Retail chain Spar is making progress in restoring the botched SAP enterprise resource planning (ERP) implementation that cost the company R1.6 billion.
Spar today outlined the progress it has made in stabilising the ERP project in a trading update for the 47 weeks to 23 August 2024.
In November last year, JSE-listed Spar said the unsuccessful launch of a new ERP IT system (SAP) at the KwaZulu-Natal (KZN) distribution centre severely impacted its KZN trading performance, causing a loss of group turnover estimated at R1.6 billion.
According to the retailer, the operational impact amounted to an estimated R720 million in loss of profit for this region.
“As a result of the change in approach towards the SAP implementation rollout for the foreign regions, a write-off of R94 million in respect of the SAP ‘asset under construction’ has been recognised,” the group said.
Spar Group encountered multiple obstacles during the rollout of the SAP software, particularly at its KZN distribution centre, which was the first to adopt the new system in February 2023.
The transition resulted in various go-live and integration issues, significantly impacting distribution operations in the region.
These challenges disrupted stock deliveries to retailers’ stores, leading to reduced service levels and a decline in retailer loyalty.
According to Spar, in or around October 2021, a member of the company’s board received a whistleblower’s letter containing allegations in relation to the SAP implementation project.
It revealed that three directors, who have since left the company, ignored the whistleblower’s concerns about the botched rollout.
In today’s trading update, the retailer says: “Significant progress has been made in stabilising the ERP implementation at our KwaZulu-Natal distribution centre and we have implemented upgrades to allow our procurement teams to have better visibility when making pricing decisions.”
According to Spar, early indications are positive and normal margins should be achieved in the near-term.
“We have also begun to plan our rollout for the remaining distribution centres, which should gain meaningful progress in the 2025 financial year. We continue to focus on returning the SA business to a 3% operating profit margin by end of the 2026 financial year and are in the process of reviewing our target operating model with a view to maximising value to Spar shareholders.
“We intend kicking off new initiatives in quarter one of FY2025 to drive the margin improvement. Improvement at our KZN facility and strong cost control over the course of the year have mitigated the weaker than expected sales performance.”
Meanwhile, Spar’s total sales grew by 3.5%, reflecting varied performances across the business units, says the retailer.
It saw combined core grocery and liquor sales growth of 3.6%, against internally measured price inflation of 5.8%, with liquor sales showing an exceptional performance of 10.5%.
“Pleasingly, total retail growth to the end of August 2024 through our grocery and liquor stores has grown by 6.1%, showing the strength and resilience of the Spar brand.
“Build It delivered a pleasing sales increase of 1.2%, marking a recovery after a decline in the first half of the 2024 financial year. This improvement was supported by the easing of load-shedding challenges in South Africa.”
Spar points out that retail sales in its Build It division have grown by 2.4% to end August 2024.
The pharmaceutical business, S Buys, continued its strong first half-year performance, with a 14.9% increase in turnover driven by increased loyalty and growth in Scriptwise.
“While the sales performance for the period has been weaker than expected, the group has made significant progress on its short-term priorities, it states.
“The disposal of our Polish business is under way, with the sale and purchase agreement now signed. We expect the transaction to be implemented in the coming months.”
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