BRICs and beyond: Spar International and emerging markets
Spar International's business model of working with local businesses has allowed the company to effectively penetrate emerging markets, a formula it has recently used to great effect in Africa. Sam Webb discusses the opportunities presented by emerging economies and consumer confidence with Tobias Wasmuht, international retail and marketing director of Spar International, as well as managing director of Spar China, having led expansion into the country in 2004.
just-food: First of all, can you give us an overview of your emerging markets?
If we look at the last decade, we have seen the economic centre of gravity moving more and more east, and I'm not just talking about macro but also about Spar. In the early 90s we entered, through our Austrian operation, Central and Eastern Europe, one of the first to do so at that time.
Moving into the last decade, what really was a major process for us was RCI - when other people talk about BRICS, we talk about RCI - Russia, China and India. We started in early 2000 in Russia and initially we were a local player, a wholesaler, that expanded into retail, which has now grown into a US$1bn business at the end of 2010. Russia has been a big success story for us. In China we've identified some of the leading local retailers and theirs is a story that's not told very often. We hear a lot about international retailers in China, but there are local retailers who have developed their businesses through the market opportunities that arose at the beginning of the opening of China. They now own large regional chains and those regional chains, with the increased advent of international competition, sought to join together and joined Spar to form an organisation. We now have 160 stores in China. We've also opened a distribution centre and put supply chains in place so we are now able to service smaller supermarkets, so now we're growing into the independent sector.
just-food: China is suffering from very high inflation, like the rest of the world. How is trading there at the moment?
Inflation is a problem in terms of the price of pork and core vegetables and this is causing great concern amongst the mass populace and that for us is very difficult to manage, but we are succeeding at doing that. If you look at our like-for-like sales, taking out inflation, there's a lot of growth in China. It is a challenge that all retailers face but there are obviously controls put in place by the government in terms of seeking to manage that. It's a top priority in Beijing.
just-food: And what is the forecast there? The Chinese government has said improved production will alleviate the problem. Is it right?
Yields are improving and we are also seeing an improved product supply chain with less wastage. Historically there's high waste so a lot of focus is on improving the supply chain and efficiency. Our partners in China are a model enterprise and are a base of learning for other retailers because the have created a very good farm-to-plate system. That is the solution for the industry.
How is the expansion into Africa going? Dr Gordon Campbell (Spar International's MD) spoke very positively about it (at the World Retail Congress).
Worldwide, about 15% of our sales are now in Africa and is being driven, from our perspective, by Spar in South Africa. Spar South Africa is a great organisation not only because of its growth and achievement but because 100% of the stores are actually independently owned and control 27.5% of the modern retail market. From South Africa we developed Spar organisations in Namibia where we have 26 stores and good increasing sales and in Botswana we're up to 26 stores. A key country is Zimbabwe, because if you look at the last decade and the economic, political and human rights issues, the severe environment that the people of Zimbabwe face, the proudly independent Spar Zimbabwe retailers are a resilient lot to come through that upheaval and we're now up to 70 stores. Zimbabwe is out of trouble, we've seen good growth and sales have increased 42.5% in 2010. We've seen real growth in Africa and there's a bright future in Africa. We have every intention to be a leading retailer there in the future.
Is North Africa an area you hope to expand into?
Our next focus will be the MENA region. That is a key region for us. I can't say too much about it at the moment but very shortly there will be developments for Spar in the MENA region.
India has 1bn plus people, a very young population, great demographics and great opportunities. However it's closed to direct foreign investment and so we work with a strong partner, Landmark, a business that is 100% Indian-owned. The combination of our partners there, combined with our international experience and knowledge has really developed a format and model which is highly successful. We've managed to achieve profitability for a large number of the stores, which has mostly come about from reducing operational costs, waste and improving the overall management operation to such an extent that we were voted most respected large format retailer and that is in a relatively short period of time. India is going from strength to strength - we have a strong brand and the opportunities in a country with the scale of India means we can grow into those regions we are not in yet.
Your format has always been working with local partners. That must have given you a huge head start in India.
The main story in retail investment in India is from Wal-Mart Stores and Tesco and so forth with their cash and carry formats, but there are other retail trends like ourselves who are developing fast. That's a story not often told, about the strength of the local players. We see a lot of opportunity for the future regardless of future competition, whether local or international.
How is consumer confidence generally?
There's no point trying to paint a rosy picture - consumer confidence is low. People's personal balance sheets are depleted, their net worth has dropped, their portfolio is massively reduced. They're cutting back on expenditures in terms of grocery, which is traditionally seen by investment banks as a defensive area, as recession proof. Nonetheless we have seen a switch to the increasingly smart shopper. They're looking for alternatives, lower prices and we've seen a growth in private label sales as a contribution to total. At the same time you've got this bipolar effect, one side looking for value and the other looking for added value, be that through fair trade or organic and premium ranges. In one shopping basket you could have everyday staples at low prices but that same consumer has added value, premium organic ranges or sustainable products. That trend isn't new but it's certainly more enunciated at this time.
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