Good morning, everyone, and a warm welcome to the SPAR Capital Markets Day, hosted by SBG Securities . Apologies from our side for the slightly later start. We're just waiting for the final transport, or transfer at least, to arrive from the airport. Today, and I think over the next few days, we are privileged to host the SPAR Management Team, not just within the C-Suite, but as per usual with these events, providing access to the Senior Management Team. We are grateful for the time allocated by all involved in the process in arranging the Capital Markets Day and site visits, but also to you present in the room for making the trip down to Durban, most coming from Cape Town and Jo'burg. Much appreciated over what we acknowledge to be quite a busy reporting season and a much awaited fiscal budget later this afternoon.
I know, I mean, peering at the ocean alongside, it's tempting, but I'm sure management will keep us engaged and captivated as well. Through the course of today, the SPAR Team will provide a breath of insight into the business, zooming in on where the business has come from and where it's heading to, while chatting to brand resonance in South Africa, coupled with the group's exposure to liquor, building supplies, and the pharma retail categories. If the entry exhibit, which many of you would have seen when you came through, is anything to go by, I'm sure there are likely to be a few new levers that we didn't fully appreciate that management aimed to pull in the broader South African business in order to drive footfall across the LSM spectrum.
As we near closer to the end of the day, management will conclude with a session on the group's international operations, where many believe the near-term catalysts do lie. We aim to have a Q&A session where feasible throughout the day to attend to questions within particular segments, while also keeping time right at the end of the day for a catch-all session where management can potentially deal with any lingering questions. For those on the live stream, please feel free to pop questions into the facility that has been made available, and we will work through the questions again, either at the end of the segment or during the catch-all session.
Onto tomorrow and Friday, for those of you that are joining us as well, we hope to kick the tires walking around a DC that has been front of mind for many investors, being KZN, while being able to compare it to the Western Cape facility on Friday as well. We'll be visiting stores that provide insight into the group's appeal across various LSM segments, with a skew towards those serving the lower end of the market. No doubt, as you can imagine, quite a busy and promising next three days, and I think it's likely to be quite interesting and insightful. Without stealing much more time from the team, Angelo, I'm honored to host you and the team, and I'll hand over to you now. Thank you.
Thank you. Thanks, Jayesh, for that intro. I mean, you've covered the business. There's not much more for us to say, so I want to start off with a bit of a caveat, and I guess in the spirit of being honest, we hadn't expected this to turn into a Capital Markets Day. For many of you, as we engaged with you, something that came up regularly was that it appeared as if the market didn't understand our strength, particularly in the rural and township markets, and this actually started out as a plan to, as an immersion, so we could show you how good we are in those markets, and I think in a number of the sessions, we promised to do that, so that was how this started, Jayesh somehow convinced us to do this, yeah, so just a brief idea of how this started.
We had a management team just over the last couple of days trying to frantically put together a framework of what a Capital Markets Day would look like. So that's a caveat at the beginning. In terms of the SPAR Group, let's see if we can get this to work. I'm sure all of you, I don't think anybody needs any real introduction to this. We ran, at the moment, we ran four businesses up until, well, the end of January, it was five. Really looking at, obviously, the South African business, the core of our business, nearly ZAR 100 billion with a wholesale turnover, ZAR 140 million at retail, I think.
Really the core of our business, and I'll talk about it later, but really a part of our business has probably been slightly neglected as we've been focusing on fixing some of the issues in Europe. We then have the Irish business, very strong business, ZAR 41 billion with a turnover in Ireland last year, really split the majority of Ireland, ZAR 6 billion in the U.K.. We've got about 300 stores in the U.K.. It's the only territory other than Sri Lanka, which is quite small, where the majority of our business is a retail business. Our Irish business is very, very well diversified. We run a number of segments there. I'll take you through that a bit later. It's a very interesting business, and we'll talk a bit about that later. Switzerland, a bit of a stepchild, really. It's a business that when we bought it, was loss-making.
We quickly turned it into a profit-making business. As you know, we saw massive benefits in that business as the borders closed during COVID. Since COVID, as I guess the restrictions on the borders have receded, we've seen the turnover come back or fall back to levels pre-COVID, which is a big concern for us. That business, about 60%-65% of that business is a wholesale business with quite a big exposure to retail, but not massive. Then 40% of the business, 35%-40% of the business is a cash and carry business called Top CC that mainly targets the gastronomical or gastronomy segment in Switzerland. We've got a small joint venture in Sri Lanka, sorry, where we hold 50% shareholding with a local partner called Ceylon Biscuits Limited, quite a big local manufacturer of biscuits and other confectionery, massive player.
They service about 140,000 customers. They've got plants in Sri Lanka as well as Africa, so they've got a plant in Ghana, and they do quite a bit of business in North Africa. A growing market for us, really growing at big numbers, nearly ZAR 1 billion with a turnover now, but that's set to grow quite dramatically over the next couple of years as we add retail stores. We're up to 31 stores there now. It's really a view of what we look like geographically. Just an idea of the SPAR Group and how we ended up where we are today. So it was formed in 1963. It was at SPAR South Africa was formed in 1963. Back then, I think there were nine wholesalers who participated under the SPAR brand, independent wholesalers, the biggest of which was in KZN, a company called WG Brown, Max, WG Brown.
Over time, WG Brown bought up the other wholesalers around the country with the exception of the wholesaler in Nelspruit and at a point was purchased by Tiger Brands, at which point we became semi-listed, I guess, quasi-listed. We were a subsidiary of a holding company. In the early 2000s, the company was spun off and listed on its own, I think around 2003. Interestingly enough, I mean, we are now, well, at some point, we were a little bit bigger than Tiger. We're now just a little bit smaller than Tiger is, which is just an interesting bit of info. We obviously are mainly a wholesale business, and we were the first to see this opportunity in retail liquor. At the time, the liquor industry in South Africa was quite a seedy industry.
It's going to sound quite, I guess, misogynistic to say this, but at the time that we launched TOPS in the early 2000s, really the idea was that housewives didn't want to go buy liquor because their husbands had to go to the off-sales. It was a bit off-sales that we needed. We saw an opportunity to create a more formalized, nicer liquor experience. We did a really good job with that, as you know. 25 years later, TOPS is now the biggest liquor brand in the country. A little bit before that, actually, we went into building materials. There's a very interesting story about how building materials started in South Africa. Obviously, hardware has always been an area of strength for us, particularly rural hardware.
And at some time in the late 1990s, some of our retailers found that selling cement and other DIY products went quite well off their shelves. So almost accidentally found out that there was an opportunity here. We then developed that into a formal private label within SPAR stores called Build it. That was later taken out into individuals, into a privately, or not privately, independent store. And that's where Build it started again. Today, I think this year is 35 years of Build it.
In that 35 years, we've become market leaders, also the biggest building materials brand in the country, which talks to really what we see as the underlying strength of our model, which is that our model, although we monetize by being a wholesaler, the strength of our model really is about our ability to unleash the power of independent retail and allow independent retailers a banner to pull and corral around so that they can compete with the chains, which was the intent of SPAR International whenever they started 60-odd years ago. In terms of international expansion, in the early 2010s, all South African companies were looking at what they could do offshore or outside of our borders.
In the main South African companies, the common consensus was for South African companies to look at expanding into the balance of Africa and that Africa would be this massive opportunity. That hasn't quite panned out, as we all know. SPAR took quite a contrarian approach. Unfortunately, at times, we tend to be contrarian for whatever reason. In this particular case, I think it worked out well. Somewhere around 2013, Graham O'Connor started talking to our colleagues in Ireland or one of the other partner countries within the stable of SPAR International, and we finalized an acquisition to buy 60% of that or 80% of that business. It was a business that was in trouble, was profitable, but really had a very weak balance sheet, and post-GFC was really being run by the banks.
We stepped in, bought the business out of that, I guess, bank control, and have really set that business on a path to becoming self-sustainable. At this point, not a path anymore. It is self-sustainable. At the point that we took the business over, it was netting about 1.5%, 1.2%, 1.3%. It now nets the Irish business on its own about 3%, and if you take the U.K. into it, it comes down to about 2.6%, so really good acquisition for the group. On the back of that, we were quite confident about our abilities in Europe. We went into the Swiss business. We bought 60% of that business in 2018, and the timing was quite interesting because we went into the business. It was loss-making or slightly loss-making at an operating profit level.
There was some EBITDA on the business, but quickly got that business past break-even and operating profit from an operating profit perspective, and just as we did that, COVID hit. Borders closed in Switzerland. There's a lot of leakage of retail turnover in Switzerland, and there was a massive uptake in that business. Turnovers went up. It's got quite a static cost base, which meant that profits just fell to the bottom. Unfortunately, as the borders reopened, we weren't able to retain those customers and have steadily been losing retail turnover in that business for a while now, as you all know, and I'm sure that's going to be a topic for discussion later, if you can give me a bit of space so I can prepare myself for it.
Then as we were going through this really big surge in growth in Switzerland, the opportunity in Poland came up. Poland was an interesting market for us. Some of the independent research we did at the time showed 80,000 independent retailers in the country really needing a home. Coming out of, I guess, at the end of the Iron Curtain, retail hadn't quite formalized. Some of the big European players like Carrefour, Tesco hadn't made a move into the country. There were some very strong retail players in the country who operate as a discounter, really, Portuguese company. But the reality is we saw an opportunity to create a home for these independent retailers for a number of reasons. And again, COVID comes up. We bought that business as lockdown started. We didn't get the growth trajectory we expected at the beginning and just really struggled from there.
As you know, we decided at the end of last year or end of 2023 that we had to dispose of that business. And as you know, we successfully concluded that transaction on the 20th or 31st of January 2025 and have handed that business over. And then somewhere in between, this little opportunity presented itself in Switzerland, not Switzerland, Sri Lanka. And just to give you some background on what happened there, what SPAR International do generally when they introduce a new country is they look for a sponsor country from one of the bigger SPAR International members. We are the second biggest member of SPAR International after SPAR Austria. And I guess given our markets and the informal trade we do or trade we do in informal markets, SPAR International felt we were the right operator to provide guidance for them.
As they came over and saw our stores, they really asked us whether we wanted to get involved, and that's how the 50/50 partnership has taken place. It is a little, it's a very small business, doesn't take any cash from us, and is set for a good runway to growth, and that really encompasses international expansion, and the thinking at the time was really to create a competitive edge, I guess to some extent. Unfortunately, the levels of debt we took on means any benefit from being a competitive edge was essentially wiped away by the fact that we carried the amount of debt that we did, which was unwise.
With that as a background, I think laws in SA have changed, particularly around managing funds and how they are allowed to invest overseas, which means SA investors don't really need SA companies to expand overseas anymore to have exposure to international markets. And with that in mind, in particular, and in particular with the amount of debt the company took on to fund the European expansion, our board, together with the executive team, looked at where we found ourselves and said, "Well, is this the best allocation of capital?" And as you know, we made the decision to exit Poland. It was really eating up the amount of, well, eating up working capital within the SA business as well as carrying significant amounts of debt.
On the back of that, we are now reviewing the other European operations to make sure that we get the right return relative to the amount of debt we carry. And as I said, I'm sure we're going to get lots of questions about Switzerland and the U.K. a bit later, and I'm happy to take those then. Just give me the time now to prepare myself because I'm sure I'm going to get peppered by that. But it is something that's quite important for us and probably the next big strategic lever that we need to pull and create certainty. As I said earlier, our core competencies, as we view it, is one is the strength of the SPAR brand. We are the second biggest retailer in the country by turnover, by retail turnover. And we have an exceptionally strong brand in groceries.
We have probably by far the strongest brand in liquor to the point where, and something to always be recognized is when your name gets used as a synonym for something. It doesn't matter which liquor store you're going to. You could be going to a Checkers liquor shop, but you'll be saying to your partner, "I'm popping in a TOPS." And that's really, it's an exceptionally strong brand for us. And then Build it, similarly. And I mean, I think when we talk and I remember after Meg joined the group, having long chats about this ability of ours to take independent retailers and make them the strongest brands in the country. And I think both TOPS and Build it demonstrate the ability of our model to do that.
The fact that we've taken these two businesses from nothing and grown them from scratch, not by acquisition, and turned them into the biggest brands in the country is something that we should be very proud of. And it talks to where we possibly go in the future. And then lastly, whilst we monetize through warehousing and logistics, and that's how we make our cash. As I said earlier, our core competency is really to provide the leadership to retail so that they, to independent retailers, so that they can compete effectively with the chains. If we look at our competitive positioning in SA, we've been in grocery for 61 years, 62 now. And we operate under five grocery banners: SPAR, KWIKSPAR, SUPERSPAR , SaveMor, and then SPAR Express.
And this is something that we're looking at in terms of this format architecture because we're not sure that this resonates with consumers as well as we think it used to. And I think customers always appreciate the differences here, and we're doing a lot of work in terms of ensuring that these formats are ready for the future. And Max will talk a bit about that later. Adjacencies to that, last year we bought a controlling share of Engen. Engen was a private label business that operated outside of SPAR, but basically did business exclusively for SPAR. We bought that business and in the throes of incorporating that into the broader SPAR business. We run six distribution centers and with Engen, seven in groceries. So we have an inland consolidation center for Engen, really, where we bring imported product and hold and distribute from there.
We've got just short of 1,100 retail stores, and our average retailer loyalty is 80%. In liquor, we run under two brands, TOPS and SaveMor Liquor. SaveMor Liquor is really a very small player. We've only got 13 or 14 stores, and that's really the only reason it exists is for retailers who don't have the appetite to upspec to TOPS. So even SaveMor retailers, given that it's SaveMor at SPAR, are allowed to open at TOPS. And the vast majority of them run their liquor stores as TOPS stores. Something new that we hadn't had in the past as Engen has integrated into the business is we've created a private label business within liquor called Engen, and there's massive opportunity there. This business is less than a year old.
Thami and Bruce will talk about what we're going to be doing in that space a little bit later. Quite exciting stuff happening in that space. Build it, we run two formats, Build it, which is a regular building material store, and then we run Build it Plus, which is a bigger format, not quite as big as Build it's warehouse, but within the Build it Plus. There's certain expectations that retailers have to have. They have to offer tool hire, certain carpentry and cutting of wood. There's a whole bunch of things that they offer within Build it Plus. There we run one distribution center. We call it the SPAR imports warehouse, but it basically operates exclusively for Build it and imports goods from China, particularly sanitary ware and plastic ware within the building industry.
We run primarily a dropshipment supplier, and that becomes quite key when we talk about our plans with regards to our ERP rollout. The Build it business runs; the exact number is 93, but call it 90-10. 90% of our turnover in the Build it business is dropshipment turnover. Dropshipment in some of the European markets is called central billing. Really what happens there is supplier delivers directly to store, but bills centrally. 10% of the goods out of that in this business comes out of the Build it's imports DC. As I said, we'll talk about that a bit later when we talk about the ERP implementation and the rest of the business. Pharmacy, we've been in pharmacy for about seven years. It's quite a diversified business, oddly enough. Although it's small, we run three real distinct businesses there, and we're starting a fourth.
So we've got pharmacy at SPAR, just over 120 pharmacies. We had gotten that number up to about 160, although what we found was many of the retailers who joined only wanted the SPAR brand above their door. They weren't willing to buy from us. So we culled the low loyalty stores, and we've seen a good return from making that decision. We run a consumer health business there, which really is starting off now where we're starting to brand health goods and sell them both into SPAR and through the pharmacies. So really a private label business. Non-SPAR Medical, again, is similar to that. And then Scriptpharm is one of the biggest courier pharmacies in the country, really focusing on delivering prescription meds on regular order directly to customers' doors. And that business is growing like the clippers.
And then we've also got one of the biggest retail academies in the country. Something I didn't know is that through, or what's interesting to know, is that S Buys trains nearly 50% of the pharmacist assistants in the country through our academy, and it is a good profit center for us. It's located in Carletonville, and at the moment, it's not optimal because we are servicing all the SPAR pharmacies around the country out of Carletonville. And the pharmacy supply chain is quite different to the retail one where you're really delivering small packages more than once a day. And so we're flying packages from Carletonville, or you can't fly from Carletonville, but from Johannesburg into Cape Town and Durban every day and then delivering on little scooters twice a day. It's not ideal.
We are looking at expanding into dedicated warehouse space in the short term, probably in the Western Cape and KZN, not KZN, Western Cape and KZN, to pick up the three main centers in the country. In the future, we could look at adding pharmacy distribution centers to our existing distribution centers. We look at Ireland and the southwest of England. We've been in that business for 11 years. It's the only one of our businesses where we run a multi-brand strategy. At retail, about 60% of our turnover is out of SPAR and EUROSPAR, but then we do significant turnover out of these other little symbols, as they call them.
This multi-brand strategy in a small country like Ireland with less than six million people means that we can open stores in quite close proximity to one another without being in direct competition, or at least not competing under the same brand. There's Value Centre, which in the Irish business is our cash and carry business. We run about just short of 30 Value Centre s. It's a very interesting business that does really well, and it also plays its part in terms of reducing our costs in our business. We do the majority of our deliveries to stores out of a central distribution center. We call it the NDC, the National DC in Ireland.
But then some of our supplementary goods that go into stores will be pulled out of our cash and carries and delivered from there, all done electronically, very cleverly, and reduces operating costs quite significantly. And then we run about 20% of that business now is called BWG Foodservice , where we sell food into formal channels like hotels. And I guess in Ireland, you're not that scared of doing business with government, so you'll sell into hospitals and prisons, etc. But a really interesting high-margin business for us. We've got 1,400 stores in Ireland, but for those of you who've been there, they are very convenience-focused. The majority of our stores operate under three or 400 sq m, and then we've got a small estate of EUROSPARs that operate 800 sq m or bigger. And then Switzerland, we run three SPAR brands: SPAR, EUROSPAR, and SPAR Express.
And then we run TopCC, as I mentioned earlier, is the cash and carry business in Switzerland. And Maxi is an affiliate brand where we don't provide anything other than the brand, so we don't provide any marketing support, etc., for those small independent retailers who just want to go it on their own but want to be able to buy from a central distribution center. Again, we've got one distribution center in this country in St. Gallen, and we run just over 300 stores. Something that's come up as a question around Switzerland, and I'm actually scared now because we're going to go into Q&A, so I've got to prepare myself, is the Swiss sanction. So just to dive in, just before our results announcement in the end of November or beginning of December, I think it was, we received a notice to sanction from WEKO.
WEKO is essentially the Competition Commission in Switzerland. This was related to their action against a central buying body called Markant, of which we were a member, one of 20 members or about 19 members in Switzerland. The intention to sanction was served on Markant as well as all the other 19 members of this buying cooperative. At this stage, it is simply signaling an intent to sanction us. If you look at the split in South Africa, you have the Competition Commission, and then you've got the deciding body, which is the Competition Tribunal. You need to think about Switzerland in the same way. You've got WEKO, which acts as the Competition Commission, and then you've got the Competition Secretariat, which is essentially our equivalent of the Competition Tribunal. WEKO will issue their findings, issue it to the Tribunal. The Tribunal will hear that case in May.
So WEKO, as I said, in December informed us of their intention to sanction. We had to respond by the end of February, which we have. The COMCO or the Competitions Secretariat will hear this case in May, and then after, between two and four months, we'll get a decision. We expect that to be somewhere around August or September as to whether they will follow through on the sanction. If we are unhappy with the sanction, we have 30 days in which to refer this to appeal, and that will go to a federal administrative court. That process could, if it goes that far, take two to four years to get a finding, at which point we will again, if we are unhappy with the finding, have the opportunity to appeal to the Supreme Court.
And that process, we'll have 30 days to do that, and then we'll have to wait one or two years to get the final decision by the Swiss Supreme Court. I want to stress that this is the potential length of a transaction. However, this date would be key. We think we've got a very strong case, as do Markant, and I won't go into too much detail around that. But our attorneys have assured us that we have a very strong case. The reality, though, is if we aren't happy with the finding, there's a long process that'll be followed before we get to the end of it and before a fine will be binding on SPAR. The future of SPAR. This is something I tend to think a lot about these days. Really, this is where we've come from. So in 2020, the business was netting.
This is all businesses combined: Ireland, South Africa, Switzerland. Poland hadn't really kicked off back then. The business was netting 2.8% of turnover, and our turnover was around ZAR 125 billion. In the last four years, we've grown from ZAR 124 billion to ZAR 152 billion. I know one of our competitors often tells you how much turnover you do a day. I won't go that far, but there's been significant growth, ZAR 25 billion worth of growth in four years. But what we saw in 2023 was really a drop-off to 1.7% operating profit. And there were two serious impacts in that 2023 year. One was that the Polish operating losses were running at about ZAR 500 million a year. And the SAP issue in KZN cost us about ZAR 700 million in that year. So it really was a watershed year for the business.
Together with that, as you know, there were a number of concerns around corporate governance and a lot of issues within the business that needed to be cleaned out, so 2023 was really what I view as a critical year for SPAR, although I think the numbers tell you that it was a very bad year for SPAR. I think from a governance point of view and forcing the business to slow down, stop, think about what it was doing, look forward in terms of where we were going, it could end up being, and I hope it does, and we've got plans to make sure it does, be a critical year for this business looking forward in terms of turning this business around and making sure that it's fit for the future. Last year, we operated at 1.9%.
And again, that operating profit was on continuing operations with the exclusion of the Polish losses, but still quite a significant impact from SAP in the year. Together with that, what we've seen is lagging growth in South Africa, particularly big concern for us, and really slow growth in the European markets. And we have to be honest about that. And our first four months, you would have seen the trading update, were very, very slow, a lot weaker than I'd like, to be honest. There are a number of reasons for that, and I think I can take on the view of trying to tell you the revisionist history story about why that's not a bad performance. And I think it's important that we just stand up and own that that was a bad performance, and it's not something that we can tolerate.
That as a business, we need to focus, knuckle down, and return our growth to where we want it to be. In terms of KZN, KZN has returned to profitability. It's now where we want it to be. The turnaround has been stark. Although in the first six months, you won't really see too much of an impact from that turnaround. The net turnaround was relatively small in operating profit terms, but you will see that benefit us in the second six months, where a lot of, as I spoke to you last year, some of the rebate issues we picked up, etc., impacted us significantly in the second six months. The first six months were impacted, but the turnaround, and whilst the turnaround's good, you're not going to see too much of a benefit in that in the first six months.
There will be a slight benefit, though. What we have seen is that retail experience has improved and that KZN sales now no longer lag the rest of the country, and we have fulfillment rates well above 90%, and we are starting to see the benefits of a more modern system. At times, KZN is operating at a much better fulfillment rate than the rest of the country. Margin visibility has been addressed, and that has categorically been put to bed. Our GP margins in KZN are now back to normal. CSNx, our chosen warehouse system for SA, we're busy with the integration now, and as I said earlier, when we talk about the rollout of the ERP, CSNx will be rolled out into our Build it facility first towards the end of this calendar year, and that is quite a big one for us.
We've taken that approach to go into the Builders Warehouse quite deliberately. It is the smallest of our facilities by quite a long way, does under ZAR 1 billion worth of turnover, and it is an area where we can mitigate risk significantly, given that the majority of our supply chain in the Build it business, 93%, call it 90 to round down, is supplied via dropshipping. So if there are any issues there, it means that we can basically continue in the Build it business as normal, although we don't expect issues. With KZN settling, and particularly with the gross margin being settled, the chances of issues there are relatively low. What we are trying to address through CSNx is the productivity issues that we've spoken to you all about in terms of the cost to run the system, and that cost comes down significantly with CSNx.
Future rollout and risk mitigations, I've spoken about that a little bit. We've set up or overhauled the SAP steering committee in SA, made it a lot smaller and a lot more focused, and only senior, senior staff sitting on that committee, ensuring that we manage all the governance risk around the implementation, and then we've also established a business transformation committee, which you guys would have seen in our integrated annual report, to oversee the transformation and digitalization of the SPAR business over the next few years. All key projects are running through this, and this committee, we've got an executive committee within business transformation and then a board subcommittee that does governance oversight to ensure that all this digitalization is managed to the highest governance standards possible.
Again, Builders Warehouse is less than 1% of group sales, so we think the next rollout is going to, the risk is really going to be mitigated. European strategic review, as I mentioned earlier. This is a very topical discussion and one that I think is going to take up a lot of time today. If we're honest about where we've allocated our capital and where our debt sits, the expansion into Europe hasn't been nearly as successful as we want it to have been. The amount of debt we raised to buy out the minority shareholders in that business really has put pressure on us. Ireland has to be taken out as standalone. We've reduced the debt in that business quite substantially, and we've also renegotiated banking relationships so that profits can flow from Ireland into SA.
And we've also set up and agreed a dividend policy with the Irish team to ensure that dividends flow into the South African business from here on out. And I have to credit Reeza with really coming in and being quite firm in managing that process, but I'm sure he's going to chat about that later. And then we are seriously looking at the U.K. and Ireland. We promised a decision by the end of June. By the time we go to results on the 4th of June, we are going to be very clear and be able to share with the market what our plans are in both of those markets. And we will give you definitive answers and certainty as to what the plans are for each of them.
Something that has come up quite often, and I guess this talks to me not being an accountant, so I'm going to apologize for that upfront. The question of the net asset value per share or not per share, the net asset value in Switzerland. The NAV in Switzerland, as we've been quoted, is ZAR 3 billion or CHF 150 million. I want to be clear that that number excludes the debt. So that would be the value placed in that business if it was purchased on a cash-free debt-free basis. If that business is purchased at the ZAR 3 billion, the debt will be settled, but there won't be any additional funds that flow into SA. If we achieve anything above that, the balance of funds will flow into SA.
Just for clarity, because I know and Zwelakhe has been at me to clarify that, and I'm sure when we get into Q&A, we can talk about that a bit more. When we talk about the future, and this is something that we really have been focusing on the group, is what is the value we add? And how is it that we grow this business into the future? How do we protect what we have and grow? And I think the core that we really want to be clear about is that our core competency is supporting independent retailers and what we are calling internally as our ability to unleash the potential of independent retailers. And I don't think he's in the room, but I remember sitting with Will Reidy some time ago, probably within my first three or four months, and Will said something that stuck with me.
He says, "When I'm buying SPAR, when I'm buying SPAR shares, I'm not buying into your wholesaler. I'm buying into 1,000 independent retailers because I believe that strategically those 1,000 independent retailers are best placed to take on the corporate giant." And that has stayed with me. I think that is the value that we add. It's our ability to corral this disparate group, and trust me, it comes with lots of frustration because they are disparate and they all think differently. Trying to pull them all together under a single banner to allow them to compete with these big chains. And it's something this business has done successfully for 60 years. As I've mentioned before, we've taken the grocery business to being the second biggest grocery business in the country. We've taken liquor and building materials to being the biggest in the independent categories in this country.
And it's something I think we are hoping to do with pharmacy, and there's some opportunity. We'll talk about that a little bit later. But that really talks to the uniqueness of our model, our USP, and it's something we've got to be clear about. And I think often something that we've been struggling with in the business, and there've been some passionate debates about this, is our focus on the end customer has sometimes, I think, been a bit misplaced or been too focused on the end customer and forgetting a little bit that our customer is actually the independent retailer who's buying from us. We have to enable them to fight everybody, that they fight at retail, but our function is an enablement function, not one to tell them how to do things. And that question's going to come up later. Where's Thami? Not you.
It's something that's come up quite often in discussion because there's so much of a focus on what we should be doing at retail to fight those big corporate giants. I genuinely don't think we should overfocus on that. We certainly do need to enable the independent retailers to compete, particularly in a digital world, and we have to create the platforms for them to compete. But we have to focus on the fact that they are buying goods from us and that they are ultimately our customer because that is our core strength. We are uniquely positioned.
While there are a number of franchise options that retailers can follow in the country, none of them are entirely focused on the franchise business, which means that if they were to join any of those franchise groups, ultimately they'd be competing with a parent whose own stores were more important to them than the franchisees. Our business is entirely focused on the success of independent retail, and our success is dependent on their success. And then the last real core strength of ours is how strong we are in the community we serve. And really what we wanted to show you through this roadshow is that, take you into the stores in KwaMashu. In fact, I think we're taking you to two stores in KwaMashu, show you how those stores trade because they know the communities that they serve.
The independent retailer is intimately connected with that community, and that's something that can't be duplicated with a manager structure. In terms of areas of strategic focus, and this is something that we're really working hard on, as we say, our ambition is to unleash the power of independent retail. That is our core USP, and that's what we need to focus on. But within that, we have a complicated business, and to simplify things and to have clarity of thought, there are really four key elements that we're focusing on at the moment. One is protect the flagship SPAR position, particularly in South Africa, is to refocus and ensure that management's focus is on protecting the golden goose or the goose that lays the golden egg.
Secondly is to grow, and I think this is secondary at this point in time, but if we view that as our ability, that opens a whole lot of doors for adjacent businesses. Although that won't be our focus in the short term, we've got a lot of other more important things to fix. In time, I think that is going to be an opportunity and a vector for growth for us, and looking at this ability and where else that can add value. Clarify something that's happened, and this is also something I think that's happened in discussions with many of you. The SPAR internal structures have become quite complicated as we've set up a group structure and local structures within each of the territories.
I think it's become overly complex, and we need to simplify that, and we're in the process of doing that to ensure that there's clarity for everybody, both externally and internally, and that parameters are drawn and responsibilities are clearly defined to develop a business that is high-performing. And then lastly is execute. And execution is something that we've done well internally within the SPAR business. I don't think we've always done it as well as retail at retail as we should have, and there's a big focus on executing the big strategic levers that we want to pull at retail and how that shows up to the customer. So there is a focus on that within our business.
To put the building blocks in place, firstly, we need to show up our balance sheet or not show up our balance sheet, but reshape our balance sheet so that we are in a position of strength. So that means looking at disposals and being clear about where we allocate our capital, and as we've indicated, we'll give a decision around that and provide clarity in June when we do our roadshow. Capital structure, a big focus of ours has been to reduce debt. We were the beneficiary of a stronger rand last year, but that only told part of the story. There has been a focus in the business to reduce debt. From September 2023 to September 2024, we managed to reduce net debt to ZAR 9 billion, and we have ambitions of reducing that debt even further.
We've done multiple levers, which we've unpacked at the last roadshow in terms of how we get that. Our view is that sustainably, this business should operate at a leverage ratio or net debt to EBITDA ratio of no greater than two, and we want to operate in that sort of bounds between one and a half and two times. Then capital allocation discipline, which Reeza will talk about in depth in a little while, just ensuring that we manage the capital or how we allocate capital very clearly in a very defined way and a predictable way for our shareholders.
Our key priorities under that heading, as I said, protect the core business, the goose that lays the golden egg, ensure that we return our profitability to the levels that we've been accustomed to and you've been accustomed to, ensure that our retailers are as profitable as possible, and that really talks to the sustainability of our model. Our model works best when our retailers are making tons of money. The better they do, the better it is for us as a brand, and that really is core to the sustainability of us, and then to transform IT and to digitize this business to ensure better decision-making, more data-driven decision-making. In terms of growing within SA in particular, ensuring that our format and brand architecture are modern and fit for the future.
There are opportunities which Max will unpack a little bit later, and then we're looking at some things in this space in Ireland as well. Store expansion and new business is an area that we've lagged the market, and we need to find ways of unlocking that. We've protected organic growth often at the expense of total growth, and particularly with the land grab in retail at the moment, I think this becomes a very core lever that we need to unlock. Driving SPAR2U, and I want to expand that in terms of saying not just SPAR2U, but all on-demand platforms. We've had a relative amount of success with Uber.
In fact, to the point where Uber have come to us and said we are, when they have unlocked the SPAR store, they've seen the biggest amount of growth in a retail business amongst many, and I didn't want to say in the world, but a really strong uptick of Uber Eats when they go into our grocery stores, and we're looking at expanding that partnership and then the launch of a number of value-added services, Flex, which we spoke about at the last results roadshow, and then SPAR Mobile, and we've got a station outside showing that that's being launched at the end of March, and retail media is an opportunity for us to grow our revenue stream and our internal income. Clarity, and as we say, clarity around the portfolio review, which businesses are we in for the long term, which need to be under review.
I think we've been quite clear about that, saying the two businesses in review are the U.K. business and Switzerland, Ireland. We're very happy with the internal culture in the business and with everything that's happened around governance in the last couple of years. The culture in the business has suffered, and really we need to spend time on rebuilding that culture into a culture that we want and is representative, I think, who we are.
And then the last one is reviewing our target operating model, really looking at a target operating model that's been fairly static with the levers or not the levers, with the number 853 in South Africa, 8% GP, 5% net costs, 3% operating margin, and whether that is still applicable to some work that we're doing at the moment and what the shape of that looks like to enable the best return for shareholders and then clarifying group structure. And then the last thing, all of this works great, but it won't mean much if we aren't able to execute. And with that, I'm going to hand over to Reeza.
Thanks, Angelo. I'm the most serious finance guy, so I'm going to keep on my jacket, and I'm going to stand behind the podium. But good morning, everyone. It's really, really good to be here.
Looking at all those years that you've put down, 60, 20, 30 years, I've been here all of four and a half months. But in that period, I actually feel like I've been here for much longer. It's been a warm welcome by all of the teams. I'm very excited to be here. It's been a bit of a whirlwind introduction to the business. I've been to DCs, I've been to stores, I've met retailers, I've met the teams. I've been to our operations offshore, Switzerland, Ireland, Colombo, and yeah, I'm very excited to be here and be part of the team. But what I've done is just prepared a short agenda and a short presentation this morning. We have put a trading statement out recently, and we are in March and a few weeks away from our half-year and half-year results.
So, no. I guess no further detail, I guess, on the numbers, please. We'll stick to those rules. And we can't really disclose any more than what's in the public domain and what we have. But what I have done is prepared a presentation just on strategic priorities, most of these Angelo has touched on, but more with the finance bent, just reflecting on the recent results, September and the trading update. And then balance sheet, obviously a big focus of ours, big focus area. And then our plans around the balance sheet and our options to strengthen it. And then Angelo mentioned the approach to capital allocation. So this is a slightly different way of showing our strategic priorities, and I think you may have seen this before. But starting on the left, and I'll run through this very quickly, the SPAR Poland exit, that's effectively done.
Great job by Angelo, Megan, and the teams. We've got 60 days to do completion accounts, and this is an important step just in terms of simplifying the group and setting us on the path of strengthening the balance sheet. From a debt perspective, we had a target date there of March 2025, and I can tell you that that has been completed. So just to remind you, we had ZAR 3 billion worth of debt on our balance sheet in South Africa. There were some flows that needed to take place between Poland and South Africa. We funded that effectively with SA debt, and we took out a bridging loan, effectively a six-month bridging loan between September and March this year. And we've effectively now refunded our entire SA facilities, and we've hardened half of it into two-year and five-year terms with bullets.
We just have to get through the paperwork, but essentially that's all been done, and that funding effectively is in place. The Ireland parental guarantee, that's been removed. I mean, we communicated that previously, but we've also now removed the Swiss covenant. The Switzerland balance sheet, effectively, if you look at it with the extent of property and assets that we have on that balance sheet and the gearing, it's more keen to a property company sort of balance sheet than a retailer. We've effectively negotiated the removal of that covenant. Europe's strategic decisions targeted June 2025. I think the reality is, and Angelo's covered this, but the reality is that we are dealing with this effectively on a continuous basis. It takes an inordinate amount of management time, and clearly it's something we have to address.
There are certain parts of the group that have not been performing and don't form part of the investment thesis of the group, and we will work hard on fixing that. SAP system rollout, I'm not going to repeat that, obviously key to the SA turnaround and the SA recovery. Angelo's touched on that, and I'm sure Max will expand a little bit on that. And then SA South African profitability recovery and getting back to the 3% EBIT margin. And obviously, that's easier said than done, but the team is hard at work in getting back to that. Just in terms of recent results, again, you've seen the September numbers before, but September year was, I mean, September 2024 showed a solid year of progress and recovery with South Africa improving to a 1.5% operating margin and Ireland getting to 3%.
Switzerland dropped back effectively to 1.4%, and yeah, and our debt effectively sitting at about ZAR 9 billion in September, but I won't spend too much time on it, but it's clearly a point in time and on the path to the recovery for the SA business and hopefully for the group. Switzerland turnover went backwards by 6% in the year to September, and that continues to be a tough market for us to operate in. Ireland, I visited that business recently, and I must say, very impressed with the management team, the balance sheet, the gearing is sitting at 1.5 times, strong cash generation, a very diversified business, and they have a coverage of probably about 95% within Ireland, and it's by all accounts a self-sustaining, well-run business. We've now agreed that they will repatriate some dividends to SA over the next three years.
We've signed that off effectively in the board meeting, so that's been good. It's not quite at the historic SPAR payout ratios, but we will get there. Then just reflecting on January, the recent trading update which Angelo referred to, obviously disappointing, but I'm going to qualify it by saying that the margin improvement, especially in South Africa, continues. Some high-level comments. Obviously, we don't want to make excuses for the performance, but retail sales was higher than, obviously, wholesale sales, and we've got to fix that. We've got some work to do on loyalty, and retailers are effectively keeping up with the market, not massively exceeding the market, but they're doing it not without the help that we can give them to the extent that we can give them, and we need to fix that.
There's some, I guess, reasons for the low growth, especially in the SPAR brand. We've closed 13 stores in South Africa. We had the unrest in Mozambique, but this is going to sound like a litany of excuses, but we need to get back there. But the standout performance has really been the Build it and pharmacy growing at 7.3% and 13.3% respectively. I think Ireland may look disappointing at -1.6%, but it is actually on plan. They've closed a couple of SPAR and EUROSPAR stores in Ireland, and that was effectively planned for. And then obviously the big disappointment is, or the disappointment is Switzerland, and that -5.2% on a top line with a fairly fixed cost base is challenging and challenging for us. All right.
Then on balance sheet optimization, I think, just to start by saying that the Ireland, the column in the middle, the Ireland balance sheet is in really good shape, and I've got no concerns there whatsoever. And the approach to capital allocation is fairly disciplined. There is some expenditure on expansions and acquisitions and store acquisitions, but it's a very, very competitive market and highly saturated. So there's some, at times, we do have to buy back or buy some of our stores, but they're fairly disciplined around that. Clearly, Switzerland is a challenge for us. And then coming back to South Africa, we had net borrowings of ZAR 3.3 billion at the end of September. We've restructured our debt. We need to deliver on our EBIT and our EBIT dollar margin. And in terms of deleveraging, we have a number of other options that we can pursue.
We've reviewed our CapEx spend and our approach to CapEx, and in terms of our capital allocation framework, clearly we've got a framework now under which we will allocate CapEx in a disciplined way, and we will be looking at non-core assets, so we'll be looking at leasing our fleet, and then also we've sold the Knowles building. We're expecting that cash to flow in soon, and there's a number of other avenues that we're looking at as well, and of course, as I mentioned, Ireland will now be paying us a dividend, so very focused on balance sheet, strengthening it, relationships with our funders and our financiers, and I think we've got a plan to get to where we need to. Capital allocation, I think, as Angelo said, the framework, we now have a framework. This has been discussed with the Exco.
I've given you two slides of a fairly large presentation that we've done and quite extensive work that we've done on capital allocation, including three-year cash flows, triangulation and benchmarking of dividends and CapEx and the like. But we are focused on this. Every rand that we spend needs to generate a return in excess of our cost of capital. And yeah, the board has approved this, and yeah, personally, I'm very pleased with this. So what we aspire to deliver, real single-digit revenue growth, positive operating leverage, ROIC in excess of WACC by at least 3%, and then, as Angelo said, gearing of 1.5-2 times. In terms of growth and investment, so that talks to balance sheet.
I mean, I've spoken a lot to balance sheet strengthening and stabilization, but in terms of growth and investment, making sure that our CapEx spend is also driven top down. We agree what our top priorities are as a group, and we focus on those things, and we allocate the capital to things that will move the dial for us. And then, yeah, we need to get back to we have been a highly cash-generative business that has paid out, that has had a healthy dividend payout ratio in the past, and actually, we need to get back to that fairly quickly. So again, we've got the bit between the teeth there, and I think Angelo's committed to between one and a half and two years getting back to that. So again, we've got our work cut out for us.
This is a little bit of theory here, so if you can just sort of indulge me for a second, and I've shared this with the teams, and we need to embed this within the business, but how do we think of capital allocation and the flow of capital? Net operational cash flow, and actually, that's free cash flow after interest and tax, but before CapEx. Obviously, then the first priority is to focus on the balance sheet, balance sheet integrity, and reducing your debt, but at the same time, I think it's important that we don't neglect our core business and our estate, so spending on effectively what I call maintenance CapEx and priority projects. In SPAR, priority projects would include the IT, the transformational IT projects that we need to undertake.
And we've got a bit of catch-up to do in certain areas, but these projects are imperative to our growth. I think then it is about resuming the dividend, and if you look at this little decision tree or flow chart, and then investment in organic growth opportunities, but clearly, we have to have high conviction around that, and of course, inorganic growth as well. And then returning capital to shareholders. So we'd like to be in that position at some point in the future, and hopefully, that doesn't take us too long. But this is a bit of a theory mixed with what our priorities are, and clearly, share buybacks is much more preferable than special dividends. And then just in closing, we have the budget later today. There's some rumors about what this VAT increase is going to be and how much it's going to be.
But I think fundamentally, I think the consumer in South Africa is in a generally better position than he or she was, let's say, two years ago. I think we've seen the positive impact of the Government of National Unity , and actually, the delayed budget is a function of that. And I think we're probably getting a better outcome from a consumer perspective. I think it's going to be a volatile, I think, global backdrop. I'm no economist, but certainly, the statements coming out of the U.S. administration has been very anti-SA, but I think we've got modest growth for next year, the next couple of years. And coming, load shedding has returned in some sort of form, but we're dealing with it.
Again, I think generally, the consumers' balance sheets are in a better position, which I think makes for a better sense around retail and the consumer. It's a very competitive environment out there. It is, especially, I think, especially the top end, and we will, obviously, maximally expand on our plans effectively around that. But we, as a group and as a business, we have a big self-help opportunity here. We've scored a few own goals with some of the acquisitions that we've made. With the SAP rollout, we're undergoing a big transformation as a group. And I think it's exciting. We've got our work cut out in terms of the balance sheet and growing the business, but I think it's an exciting time for the group. And yeah, I look forward to engaging with you today and into the future. Thank you.
Okay, so we're going to take a few questions from the room. I think we are running a bit short on time, a bit behind. So we'll just keep it to the room for now, and then I think after the liquor session, not the drinking session, but the actual liquor session, then we'll take questions from the corp cam. So if you can please raise your hand, we'll try and pass the microphone around. So let's start here and then.
Martin Moore Elliott, fund managers, maybe one for Angelo. You mentioned GP margins in case they're not back to normal, but EBIT margins, profitability, a small improvement in H1 with most coming H2. Maybe you can just tell us why EBIT margins aren't following GP margins.
Okay. Is it okay without the mic? I think you can hear me. Okay, so yeah, EBIT margins haven't followed GP margins.
GP margins are firmly back where they were before. I think with each of you doing the private sessions or the group sessions that we did at the end of last year, we explained there were three key issues to SAP that once we had the rollout, if you really had to thematically deal with it, one was that GP was impacted because our buyers didn't have the visibility they needed. The second impact was on retail, which was the one that we talked first, which was sales, right? We just couldn't deliver in full and on time, and the third was productivity. The issue around sales, we got our heads around relatively quickly and within we went live in February. By August, didn't feel quick at the time, I can promise you that.
But by August, we were delivering all goods out of KZN again, and I guess we did a better job than we admitted to ourselves at the time in terms of pulling in the stop gaps from the other divisions, right? So we lost some loyalty, but we were able to put in stop gaps there. The second issue that emerged was the productivity issue, okay, which is the main reason why we've decided to go with CSNx. And unfortunately, I won't be with you at the DC tomorrow, but I'll give Damon, our MD, a call and ask him to show you this, right? So when you and I'm going to give you a physical example. We've got a mezzanine level where we store small goods, cigarettes, HABA, etc., or HABA, sorry, you guys aren't in the industry, personal care, deodorants, that sort of thing, high-value goods.
It goes up onto a mezzanine. On the old system, because it was analog, you simply took the goods from the truck, you drove the forklift, lifted the forklift up, and dropped it onto the mezzanine level at which you confirmed that it was on the mezzanine, and then somebody fetched the goods and moved the goods into their slot. Literally a two or three-step process. One, tell the system I'm at the truck. Secondly, tell them I've put the goods on the mezzanine. Third, I've taken the goods from the mezzanine and stuck it into the slot that holds it. With SAP, because it's a digital system, it needs to know everything. That three-step process is done into a 14-step process. So you're literally saying, "Okay, I'm now in the truck. Tell the system I'm there. I'm going to pick up the goods. I've now picked up the goods.
I'm turning the truck around and I'm getting to the base of the mezzanine. I'm telling you I'm there. Then I'm lifting the goods up and I'm putting it on the mezzanine level. So it's now there. Then when I'm moving the goods from the receiving area in the mezzanine to the slot, I've got to touch the goods three or four more times and tell the system," and the accumulation of those little, because they're all little 30-second interactions, 20 or 30-second interactions, but the accumulation of that in an FMCG environment where you're moving millions and millions of cartons a month creates lag, and those productivity levels aren't where they were before. Where CSNx is a customized bit of software that we've built, well, not customized. We've built off the CSNx platform on the old AS/400 structure.
The new system works on the same logic as the old, although digitized, and it will be a lot more efficient from a productivity perspective. And that is the core reason why KZN isn't back to where it was before.
Ye s.
Capital. Can you ask a user question as well? I'm sure one of them is going to fall into your lap. So I just have a few questions. The first one is the loyalty for grocery on the slide for end of January was quoted at 80%. What was that a year ago, roughly?
I think I can't talk to the detail. I can say in grocery and liquor combined. So liquor is lower because SAB goes directly to stores and it's 25% of your beers, 25% of your mix. SAB, we are profit participant, although we don't get the sales.
SAB pays us a rebate for the sales to TOPS stores, but from a loyalty perspective, it drops. So the maximum sort of loyalty you can expect in a liquor store is 75% or 80%. So the combined loyalty there is at the moment just over 79%, just 79.5%, and a year ago that was 81%.
Okay, so a year ago it was higher.
Yeah.
Okay, perfect. And then there are two other questions. Just on the rationale for using ROCE versus ROIC + 3, because ROCE is a pre-tax and ROIC is a post-tax.
Look, I think that's a matter of personal preference. We do measure both. So within the policy, we have used ROCE, but in practice, and you would have seen in our results presentations, we are measuring ROCE and both are considered. I think I wouldn't do.
So you do either ROIC and ROCE?
Yes.
We measure both, and when we consider, we will take both into account.
Okay, that's a follow-up question with regards to when you do the capital allocation. I mean, obviously, I assume you use ROIC instead of ROCE when you look at whether to go ahead with the investment. At the investment level.
We will look at both with the pluses and minuses to both. So I don't know if you want to deal with that in any more detail.
Yeah, I think on an individual sort of business case basis, we will, I mean, clearly we will do the, I mean, the IRRs and the business cases based on the cost of the capital that we're employing. So it's on a ROCE basis on an individual project, from an individual project perspective.
Look, I think in terms of practice on an individual project basis, ROCE is probably an easier one to get per project. ROIC is harder to implement on an individual project basis. But practically speaking, we do look at both. And I think we've been clear when we've done our last two results presentations. We've shown the ROIC and not the ROCE, actually. ROIC is probably the more important measure. I think it's just a matter of practicality.
Steve from 36ONE Asset Management. Just in terms of the potential sanction in Switzerland, should you decide to dispose of that business, how would that be treated?
There are a number of ways in which it could be treated.
One is that if the value on the business is done at an arm's length basis and the new owner considers taking on that, the price will obviously be adjusted for that risk. The second is if the new owner is not willing to take on that risk, that the value of the business gets taken into account, excluding that risk, and we provide some sort of security against that risk over time. Thirdly, it could be a mix of the two. Depending, it is a very complex case. Depending on the appetite for risk of the buyer and our appetite for risk, we could find a blend of the two that we could cover a portion of it and a portion could be at risk. All three scenarios are in play at the moment.
So there's the opportunity to provide an indemnity and flow back to SA. Thirdly, I mean, there could be an opportunity that something gets left in escrow to cover that risk. There are a number of ways in which we practically could do it.
How are you thinking about changing the decentralized model in the DCs? Are you thinking of centralizing certain functions, removing some of the power so you can have speed of execution? What's your strategy on that?
I think the initial strategy, so this is going to be a change over time. The initial strategy is to take the non-commercial functions, the ones that aren't dealing directly with retailers, and move those into a more shared services model.
In the short term, the view is to leave the commercial functions, the procurement and negotiation and selling functions within the distribution centers who deal directly with the retailers every day. That point of contact is quite important. Over time, I think what will happen is that the key big items, and if I don't have a piece of paper to write on, but if you think of within the commercial function, so I'm sure you're comfortable with the non-commercial stuff. The non-commercial stuff is quite easy to do.
On the commercial functions, I guess the way we're thinking at the moment is if you think of the sale of goods as a bell curve, and the big number of items, small number of items, large volume of sales through distribution centers are probably best suited to being negotiated locally because our retailers negotiate on those commodities all the time. Then you're going to have a big fat middle of product that are less commodity-driven but are popular across the country. And those we probably put in a quasi-centralization in terms of negotiation with suppliers, etc. Then you've got a tail of localized goods which each distribution center does with local suppliers. And that probably, so you have the two ends being localized but the big fat middle being done centrally.
Okay.
Another one in your price perception, do you feel that there needs to be or how do you change potentially a price perception that SPAR's not as cheap as other retailers?
Look, I would argue. I mean, I guess it's not constructive to argue the point, but if you look at where the results sit right now, those retailers at the top end of the market are getting strong growth, and it talks to less, particularly at the top of the market, focuses a lot more on quality and delivery than it does on price in and of itself. The premise of the question I get, particularly at the bottom end of the market, but it's not universal across the market. SPAR has a legacy of poor price perception.
I'd argue at the moment we are too well priced that we don't get the credit for being as well priced as we are. So you might as well be more expensive and make a bit more margin. But I mean, that's anecdotal. I promise you we won't implement that at stores, but it's a sarcastic comment from me. But all the price surveys we do at the moment, we are probably the best priced retailer out there, if not best, second best. And there are a number of platforms, and it depends on where you focus your energy, which baskets you put together, but generally we are exceptionally well priced. I don't think we get the credit for that, and I think that talks to a marketing job as opposed to physical pricing on floor. And that's our biggest challenge.
And I think something that we haven't done aggressively enough in the past is talk aggressively about price. So because we try to capture all brands, all retailers under one brand, the guy in Clifton or in Sea Point using the same brand as the guy in Gugulethu, which you'll see on Friday, we tend to make up our marketing messages much more generic around being community-focused and family-focused, etc. But I think there is a body of work to be done around telling a more compelling price story a lot more aggressively, which we haven't done in the past. And I think that's why consumer perception relative to price on shelf has lagged. But we need the vehicles to do that.
Max will talk a bit later about pulling out some of our really high-end stores into a different brand or format so that we can tell a much more compelling price message in the middle of the market.
Just a last question, and then we'll put the session to a close.
Sorry, just to follow on from the first one.
You at the AGM? You asked lots of questions.
The KZN, do you not expect KZN to get back to EBIT margin, normal EBIT margin until CSNx is implemented?
We're seeing gains in productivity. I think we get before CSNx gets back there, I think we get to 90%. At the moment, we're probably operating at about 65% of normal margin. But you'll see the amount of volume that that DC goes through tomorrow when you visit it.
And I think that productivity gap, and this is not modeled out, but I don't think with the SAP Warehouse system, we get back to where we were. You probably get to 90%.
Perfect. Thank you, everyone. So we're going to take a 15-minute break, and then we'll be back in 15 minutes. Thank you.
Okay, morning everybody, and to those dialed in online, good morning. My name's Max Oliva. I'm looking after the Southern African business for SPAR and TOPS, or groceries and liquor side of the business. And slightly different to Reeza, in February, I was 30 years with SPAR. So SPAR's turned 62 in February, and I've been in the business 30 years. Before I start, I just want to play you a little video. Hopefully, it does play, which talks to the essence of our community retailing and our family-owned businesses.
The world needed someone with vision, resilience, and heart. Someone who'd wake before dawn to open the doors, welcome every customer with a smile, and stay long after the lights dim to ensure everything is just right. So a retailer was born. It had to be someone who would build not just a business, but a community. Someone who would know their customers by name, understand their needs, and go the extra mile to make every visit feel like home. A person who would handpick the freshest produce, stock the finest local goods, and offer the specials that keep families coming back. So a SPAR retailer was born. Someone who wouldn't just run a store, but craft an experience, who would take pride in their shelves, ensure every product has a purpose, and create a space where quality meets care.
Who would partner with local suppliers, support small businesses, and bring the best of the region to their customers. So a SPAR retailer was born. Someone independent, yet part of something bigger, who would embrace the freedom to make their store their own, to be known for the bakery that always smells like home, for the butchery that serves only the finest cuts, for the daily that turns simple meals into something special. Someone who would understand that retail is not just about selling, but about serving the communities we love. That every discount, every fresh loaf, and every friendly greeting is not just a transaction. It's a promise. A promise that every SPAR is unique because it's run by people who care. People who pour their passion into their store. People who just don't sell products, but build connections.
Because every SPAR is as unique as the people it serves, and so a SPAR retailer was born, and they were born just for you.
Okay, so that's a campaign that kicked off two weeks ago. Just to remind our customers around what SPAR's rooted in, people that shop with us mostly understand that. It is to gain new customers coming across to their local communities. I like to use the word that SPAR creates value in communities because they're family-owned from communities. We're not a big box retailer that extracts value out of communities, so our challenge has always been growth because we cannot open boxes on every corner. We need to make sure that our community retailers are profitable and sustainable, so that is our challenge.
We are the home for independent retail, and I don't think we've done a good enough job of marketing and talking to our customer around the differentiation. It's not a franchise. So a good program running now. We're seeing some positive growth and much-needed positive growth in the inland area where we've had negative growth for the last 12 months. A similar program called SPARtoria is running in the northern part of Gauteng, and we're looking excited about this. Right. Just getting back into our purpose and vision for the South African, I'm talking grocery and liquor, SPAR and TOPS specifically. Our purpose is to inspire people to do and be more. Now, for the outsider seeing this for the first time, you might think that's quite a strange purpose, but really, again, being community-led and family-owned, there are amazing success stories.
Tons of success stories, both in the wholesaler and the retailer of individuals growing up. Roy Sheodin at SUPERSPAR Knowles in Pinetown started as a shelf packer with the Knowles family many years ago. He now owns the Knowles store. He owns Westville, one of our most successful retailers. There are other stories of security guards that have ended up as senior managers within distribution centers. We believe that we are a brand that does inspire people to do and be more, and how we interact with our communities and what our retailers do in their specific community. Something we do well, perhaps don't market it as well. It's been a humble company. It's been under the radar. We are listed. We need to step up in that space, and we'll be doing that. Our vision is to be the first choice brand in the communities we serve.
We don't want to be the biggest. We're not going to be the biggest by turnover or by store count. That's important to understand, and that's not our objective. We need to be a profitable business that's going to give returns to our shareholders and get back to where we were. But we do want to be the first choice brand in those communities because we are in all communities. I'm going to spend a bit of time talking about our rural community footprint. I think a lot of investors, a lot of external people don't quite understand how strong we are in that space and what we do in those communities. So that is our vision and has been for a while. Just briefly, at the end of January, we had 2,029 stores.
When we first launched SPAR in South Africa 62 years ago, we had 500 stores, just doing around ZAR 500 million turnover, not 500 stores, less than that, and today, at end January, it's ZAR 47 billion, call it a ZAR 48 billion. At the end of last fiscal, it was ZAR 84 billion, so you can see how this has grown through our six or seven distribution centers if you include our private label DC, and there were eight independent wholesalers 62 years ago. I have something missing here, but again, we believe we are the best challenger brand in the Southern African economy. Okay. We don't want to be the biggest, like I said, but certainly there's a place for us as the challenger brand. Second in revenue, second in store count, so we are a majority player here in this country, and we need to capitalize on that. Right.
Our executive team is just taking under the covers. A lot of you won't know this. You'll be used to Angelo, Reeza, and Megan. But this is my team from a central office perspective covering a myriad of the functions. It's really a hybrid structure that we run in SPAR, and we have six divisional managing directors, a lot of them being in the business a long time, like myself, running the respective divisions. So it just gives you a feel for the team. Bridget Da Gama, our new HR executive, is with us in the back of the room. I joined us seven months ago. And Bruce Hughes is our private label executive. He's going to be speaking to you a little bit later. He owned Engen. We bought that business through him, and he's going to just touch base briefly on what we're doing from a private label perspective.
And then Thami Silwana at the bottom left has taken over our TOPS business. He's been with us just over three months, 1 October, so a bit more, and really exciting addition to our team. Right. A snapshot and overview of what we do in Southern Africa. We're a division of the SPAR Group. We wholesale in groceries and liquors to our retailers. And it's part of the voluntary trading model. It is not a franchise. Our retailers do not have to buy through us, yet we only exist to service our retailers out in the trade. We're part of the SPAR Group Limited, and also we're part of the National Guild of Southern Africa. It's an NPC.
That guild is made up of 50% retail representation, 50% of wholesale representation, and together, we are responsible for the brand in this country, memberships, approving, and taking away of memberships in Southern Africa, so it really is a participative approach to growing this brand, and it talks to our family roots and how we run this business. I like to say sometimes that it's probably one of the most democratic listed companies in the world where our customers, our retailers, have a say in shaping certain parts of the business, certainly not everything, especially when it comes to the brand. Our support of our retailers, we have six divisional distribution centers dotted around the country. That is decentralized, a big geography. It allows us to service our retailers within those geographies effectively. We can do daily deliveries like we do to a lot of our big stores in KZN.
Normally, it's around three times a week, and it's combined loads, drop temp, groceries, all in one truck. We have one private label distribution center. We've consolidated from two to one, and I'll show you a picture of that just now up in the east end. Then a central office that helps coordinate and facilitate strategic direction for our divisions. Our stats, as any retailer would be, 24/7, 365 operations through Christmas Day, New Year's Day, servicing our stores. We have just under 5,500 staff members on the wholesale side of the business, just over 250,000 odd square meters under roof in our distribution centers. Our average stock holding is ZAR 3.1 billion. Reeza puts me under pressure there the whole time from a working capital perspective, but that's our average as a group. Our fleets travel just over 33 million kilometers annually.
So it gives you a feel for the size of our distribution network. And last year, we did over 223 million cases dispatched through our distribution centers. So now a snapshot of what we do. On the right-hand side, our turnover split between warehouse, 65% of sales generated go through our distribution centers. The balance goes through drop shipment. And I think everybody understands what drop shipment is. Really, it's central billing. Suppliers deliver to our stores, and we hold the book and manage the book and make a percentage, X% for doing that. Our model really is our target is DC profitability or our operating profit of around 3% and has spoken to the market about that and the timing thereof. We need to get back to that number, and we want our retailers to be profitable at the 3.75% level.
If we're at that space, then this business is firing. We have some way to go in both areas. A lot of our phenomenal retailers are in excess of 6 or 7%. It's our smaller retailers that are battling out there, and we've taken some decisions on how we're going to assist and support them. Strong retail is strong wholesale. And our retail turnover, like I said, year to date, in January was sitting at just under ZAR 48 billion, but last year at ZAR 84 billion annually. That ZAR 84 billion is slightly different to the ZAR 90-odd billion you represented. I'm not including Build it or Pharma in that piece. I'm just talking SPAR and TOPS. Right. Just a breakdown in terms of our footprint by format across the geographies that we serve. You can see there in South Africa, just over 1,800 stores, inclusive of all formats.
Namibia, 66; Botswana, 71; Eswatini or Swaziland, 28; and Mozambique, 18 stores. What I'd like to highlight here, and I've been asked to talk about this, and you're going to be seeing some of these fantastic emerging market stores, is if we talk SEM, one to three, old LSMs, lower LSM, it's 25% of our store footprint in our geographies. It does 30% of our sales out of that part of the business, and it's growing at 8.61% at the end of January. Now, that 8.61% is market-leading, and that's part of the market. And that's something we wanted to impress and try and show you over the next couple of days that that is our core strength. People don't necessarily know that.
They see SPAR in urban areas, but you can go into rural, rural KwaZulu-Natal, which I know well, Nongoma, Madadeni,, Nquthu, and you will see world-class stores that you can put in the middle of New York and just change the mix in that store from chicken feet and cow's heads to caviar and the like. We provide a respectable shopping experience for our rural communities. We've always traded SPAR, both in town and country, and we believe that's been our core strength in that space, albeit there is a shift in strategy in the lower end of the market, and I'm going to talk about SaveMor and the road ahead for us there. SEM 4-7, 46% of our store footprint. You can see our growth, top-line growth there started to slow.
And then really, the town piece, that higher end, is where we've been battling, and that's well documented. Hence, my SPAR Marjorie, SPARtoria, and a couple of short-term-driven campaigns that are not just warm and fluffy. It's followed up by product and price and extended promotional programs to get shoppers back into our stores and shopping these stores. At the same time, I'm going to talk about a high-end offering that we're going to launch, SPAR Gourmet, and our first store launches now 1 August in Zimbali, KZN. SaveMor, something I'd like to talk about. It's well positioned within the lower market. You can see there, all in all, it's 73-odd stores currently in the country. It's well positioned in that lower-income market segment with 67% of the total format trading within the segment, and we're showing good growth of 11%.
We believe there's a play here, and I'm going to talk through that a little bit later. Right. This is a pictogram of our stores to give you a good feel around Southern Africa, and I've split it up by the divisions, Western Cape, Eastern Cape. The Western Cape Distribution Centre, Martin and his team, you're going to meet them on Friday. Fantastic team. They take care of Namibia as well. They service Namibia. Our northern DC, Jerome Jacobs and his team, look after Botswana, and then Lowveld, Nelspruit looks after Eswatini and Mozambique. That's how we split up the country and servicing our retailers through those distribution decentralized DCs. Right. The competitor landscape, you should know this better than myself, but it's important to talk openly about it. We can see where Woolies are growing, really in the top line, the top SEM.
Shoprite Checkers is a global number. When you break that down, that's one of the highlights of what we're doing in the lower end of the market. But specifically on SPAR, total growth at 3.4% and like-for-like at 3%. Our like-for-like growth has always been our banker. It's our set of stores that we need to grow. Opening new stores is a focus, but we've got to open profitable stores. We can't run stores at a loss for an extended period of time just to gain share. So it's a slightly different nuance there. Talking about liquor, liquor in totality, Thami's going to talk about liquor in SPAR and TOPS in South Africa. But really, 939 stores are still the biggest liquor retailer in this country, and we like to think the sexiest liquor retailer in Southern Africa. A total growth of just over 6% and like-for-like at 5%.
Off a very strong base last year, we would have picked up that number, double-digit growth. Our performance to the end of January, really, I've excluded liquor here. I've got another slide on liquor specifically. The Southern African supermarkets showing retail growth of just over 2.8%. Like-for-like at 2.64%. The highlights for us, SaveMor and SPAR Express, both in double digits. I just wanted to show you what we're doing with SaveMor as it is. Our retail sales across the SA business grew at 2.4% and slightly less on the like-for-like, and accounts for 92% of all our supermarket sales in the group. Our retail sales across our foreign countries, Namibia, Botswana, Eswatini, Mozambique, I spoke about that, at 6.89%, like-for-like at just over 5.5%. Then our transactions at retail grew slightly to 300 million on transactions, and our average basket spend was up just under 2.5%.
It gives you a good feel for trading. From a liquor perspective, good growth, total growth, and I've spoken about that, both like-for-like and total. Total growth includes new store openings. Like-for-like is your organic growth on last year. And then within our South African borders, you can see the growth there at 6.02 and like-for-like just under 5. Across both countries, growing really strongly at 11.8 and over 9. Liquor transactions up over 5.5 at 50 million, and our average basket spend was up 0.7. So that's the challenge, and Thami and our team's challenge to grow that basket spend within TOPS. In terms of stores launched, net gain of three because we closed a number of stores in this current fiscal. The number you've seen, the 13 stores that have been well documented, was over in a calendar year, but over two fiscals.
A total of 26 stores were launched, 11 supermarkets, 15 liquor stores. That's where our total growth comes from. Then our reinvestment, this is quite important in how we structured. Our reinvestment or refurbishment program with our stores is funded by our SPAR retailers. We have, through our guild, a development fund program that helps our retailers save and spend at the drop of a hat when they need to draw to revamp their stores. That sits within our guild business, but it does allow immediate access, and you don't have to go to banks. We've had 33 major refurbishments in the business in the first quarter, 51 minor, a total of ZAR 211 million spent in these businesses, a net increase in selling area of just over 1,000 sq m, and I'll give you a stat there on prior year.
I think what is important is that we continue with our store upgrades and revamps. We don't want to be in a position like another competitor where you neglect your store conditions and you will never catch up. It doesn't matter how much you raise. So that is key to us. Our retailers are passionate about this, and our responsibility is to make sure that we keep upgrading in those cycles. Our focus areas as a business in SA, we talk about sales and our muted sales growth. It is pressing. We have short-term plans to drive this, and these are our goals. We need more shoppers in our stores more often, with more spend, generating more profit. Our focus areas, how are we going to go about doing this? I'm just going to touch on a couple of key programs. Really, it's the promotional program to drive retail sales.
I do want to clarify because I think the market has easily got slightly confused around promotions. There was reported that SPAR had spent less on promotions in the first quarter. It's not the case. In aggregate, we spent more than we've ever spent in that first quarter, just competition up the ante in the first quarter. But it is a driver for us to drive sales into our stores. On Black Friday, we took a view and a decision not to go as aggressive as the prior year to give it all away. And from a margin perspective for our retailers and ourselves, it was a good call. Our barter campaign was back in January. We saw some really good growth, and market share gains have come from that. Loyalties. People have spoken about it quite a bit. Our loyalty now lags just under 1.4%.
We've had a 0.6% improvement in the prior 12 months. So there is progress being made. We need to get back to that 81% level that Angelo spoke about, and that's our big drive with our relationship with our retailers and the recovery in KZN after the SAP debacle. We have launched a new retailer or refreshed our retailer overrider and rebate scheme. It's long overdue, hasn't been changed in 30 years. And really, it's adding to, not taking away. So we decided not to bring out the stick, but to bring out the carrot. We've worked this through with our guild, with our retailer representation, and it's really to incentivize more purchases through our distribution centers, and the people can earn up to almost another 2% on their rebate scheme. So that's material, and we believe that launched in 1 January.
It's a big shift for us, and it's also to respond to some of the opposition players for independent retailers. So we believe that will work nicely for us. Our fresh offering through vertical integration. I'm not allowed to go into any detail there. I've got the legal and Reeza watching me closely. I get excited about the business and sometimes share too much. I'm not used to talking to analysts. But really, an opportunity for us, if we want to make a step change in our fresh offering, we need to control the chain. And so I believe vertical integration is critical to the success of what we're doing in our private label business. Interestingly, 80% of our fresh value-added stuff, our products, is private label. So it's a core strength of ours.
A lift-and-shift project in Namibia. You can appreciate that distributing from Cape Town all the way to Windhoek and beyond does not make sense. It's a huge logistical cost, so we are shifting to try and do in-country production distribution to support our retailers there. We do that well in Botswana in partnership with Frans Jooste, our biggest retailer there, and so we've been in a project for the last six months to source and pack locally. Just from a legislation perspective, it ticks a box with the Namibian government and to service our retailers more effectively. As an example, fresh, our retailers currently get one delivery up to the north a week and locally and in and around Windhoek, two deliveries a week. Not acceptable. It needs to be three deliveries a week locally and two up north if we want to make a dent.
So it's about finding distribution capabilities in country, which we're working on. So the shift has happened. We started with groceries, children's frozens, and now fresh will be the last tick. Our private label as well, redistributing our private label at least cost into country, into our stores. We've seen a fantastic uptick on margin for our retailers and a sales growth in our Namibian geography. So really good work and obviously a massive corresponding expense saving in the distribution center in the Western Cape. But I'm sure Martin might touch on that for you briefly. Project Nando's, aptly named, it's a Mozambican project we're looking at. We've got two phenomenal retailers, Hussain Challa and the VIP Group that own that geography, 18 stores. Really big opportunity for growth.
As you can imagine, if you know Mozambique, a long country, logistics and supply chain, which is our game, is the key challenge. You've got ports that you can land product in. It needs to be with Portuguese labelling. So we're working with our retailers in country to see how else we can unlock growth in Mozambique. Some of our suppliers have seen some fantastic growth at Tiger Brands specifically, and sorry, Nestlé, not Tiger, with Nicole. But an opportunity. We've done a white paper. We will partner with our retailers if we decide to do something in country outside of what we normally do, and that's a growth opportunity. New store expansions and revamps. I've spoken about the revamps. New store expansions. We've been slow. That's something we've got to fix.
We've gone through centralizing our property business so our property teams can speak to landlords and the like in one voice and not decentralized. We're seeing immediate shifts and positive shifts in that space with that, so it takes some time to fill the pipeline. We've got a set number of stores we're opening this year. We are setting ourselves some growth targets over and above that, but within 18 months, we'll see a nice turnaround in that space. There's also good opportunity for store conversions from other brands, and there's some good interest in a number of areas which we need to land, and then our new formats, or not so new, SaveMor. What are we doing to drive this format forward? Like I said, we've got just over 70-odd stores in South Africa. It has not had purpose and direction.
We've launched a new leaflet and marketing campaign around that as a FIB, and we're going to be a lot more stricter in how we apply our SaveMor branding and format going forward. I'll talk about it later. And then Gourmet. Gourmet is our niche higher SEM offering. It's something new that we're going to be going into. I'll explain about that a little bit later too. Our corporate stores, really, our corporate stores, we have not run professionally. It's been tagged along to our distribution centers. We are now in the process of making an appointment of a managing director from one of our competitors to come and run our portfolio of corporate stores professionally. We will centralize it, so it will be run through a central team around the country, and we believe there's a lot of upside in those areas.
There are 10 stores for the stores that we're looking to get rid of, nonprofit-making stores. It's been spoken about as well, but the balance is good starts, need to be well professionally managed, like the corporate retailers run, and this division will be a good opportunity for us. In conjunction with that, Bridget is here. In the old days, we used to have a corporate retail division, a training division, where a lot of our current retailers and wholesale managers came through that process. The well-documented issues we had in South Rand with BEE retailers . If we're going to make a difference to empower entrepreneurs in this country, which we committed to, and we're really the only brand that can do that effectively, we need to have a strong corporate retail training college in play. If I may say, Bridget did set it up for McDonald's in a previous life.
We're going back and circling around on that. We're busy setting it up. It'll run in conjunction with our corporate store division and the managing director. So if a new entrant into SPAR wants to come and join us and open up a SaveMor and has got the capital, the thinking is not to allow anybody into retail unless they've had the 18-month program complete. Where you're in the butcheries, bakeries, passing certain key metrics to make sure you've got the best chance of success when you are let loose on retail. That is critical. We need to provide that guidance. Otherwise, ills of the past will come back to haunt us. But we committed to that, and again, for our country in South Africa and Southern Africa, we believe we can make a meaningful difference there, and it talks to our community retailing essence.
I know it's a space that our opposition can't really play. Our rewards program, our ask is to increase it to 12 million. We want to increase our rewards basket size. Our rewards cards are outside, and you can go and have a look at that and build our partnership, our ecosystem around rewards. We currently partner with eBucks. There's some fantastic other opportunities that are in play, and we will launch with that before the year is out. Then just our loyalty ecosystem, the whole partnership expansion. There's good opportunity and upside there, and I'm not allowed to go into any more detail in that space. Right. Strategic initiatives. There's five little tabs that I want to talk about. If I may, my slides were adjusted because I was a bit long. I'm just going to talk through them quickly.
From an SAP perspective, KZNSAP, service levels are back at 90%. I think it's been well documented and spoken about today. We're happy with that performance. There's a bit of labor management and routing on a trucking side. Those are the productivity issues that we need to get right. But on the whole, I'm very happy with where we are. Like I said, margins are good, profitability is strong, and the key thing is we are servicing our retailers effectively. Damon Harry is a new Managing Director, joined us from Woolworths. He's been in the business now just over a year, and you'll meet Damon and his team tomorrow for a quick update on the distribution center and a walk around the facility. Our digital transformation, our various and loyalty piece. We had to replatform our base into Electrum, which a lot of our competitors use.
We lost our SALI solution, which is your sales out of till promoting facility for a period. That is back, and that'll help drive and talk to our promotional program to get feet into store and some of our short-term promotional programs. Flex, you may not know, is a tool that we've developed for our retailers. It's a personalization and direct marketing platform that our retailers can use to target their customers in their stores with a bit more science and with some parameters that we put in place. We've currently run 300 campaigns, and we've reached over six million customers. It is live in 685 of our stores. We believe this is a big play to personalizing some of our store-specific promotions.
So if you like your milk tart from your local SPAR or the bread rolls that they make, they are able to target now with some precision and with data as to who is buying what in their stores. We believe this is a really big strategic play for us. And with our independent retailers, you take them to water. If the idea is good, you can produce 80% of it, and they take care of the rest. They get onto it, and they make it happen. Some better than others. That's always our challenge, is our great retailers are phenomenal. Our tail is where we need to work on. And I suppose that's a challenge of our voluntary trading model. Excuse me. Digital transformation, Accelerate and Spaceman. Really, Accelerate is what you're seeing outside. It's Circana or our partners.
You might know them from competitor space, but really, it's aggregating data, making data available to our suppliers, and monetizing that data. You'll see some of the concepts in store as well, retail media, both on the wine culture side or TOPS, and you can go out there and play with it. Please do go and scan the codes. There's gamification at play there. We've got people to help you to show you what we're doing. There's personal care concepts. There's liquor concepts. We are a late player in this space, but really, there's over some of the stats internationally, over ZAR 100 billion worth of spend in this space by marketers. It's allowing our suppliers to have access to our floor, to our media concepts, to upsell. Obviously, it comes at a cost, so it's a revenue generator for us.
We believe it's a really big play, and we think we've done it slightly differently to some of the first movers in the space, and so go out there and go and play with the retail media products, please. Our digital transformation, SPAR Mobile, and SPAR2U and we spoke about it, we have a solution. Our differentiator was the SPAR you love now online. The key to that is to allow for customization for our retailers. So if you shop in George or in Parkmore in Joburg and you like X from your certain retailer, you want to be able to get it online. Okay, if we can do that, we're differentiating. Thank you very much, but as you can understand, it's complicated to do that with 2,000-odd retail stores, but we have some good upgrades coming through in that solution, and we'll keep at it.
On top of that, the partnership with Uber Eats is quite big. The comment from the CEO of Uber Eats was it's the fastest growth they've seen in any of their geographies, and so we're going to open that up. It's integrating the Uber Eats tech into our backend at a competitive rate, which we've done. We will launch now in the Eastern Cape with the Western Cape with all our KWIKSPARs and SPAR Expresses, 42 stores in the near future, and then we'll roll it out across the country. With the key decision factor being allow the customer to choose its supply chain where it shops. It doesn't make sense to me in that it's sometimes 17% more expensive because of the Uber app, but customers have shown that they don't mind that. They're shopping it for convenience.
We've negotiated a better rate for our retailers, and we will have multiple options available for on-demand delivery through SPAR. Sensitive services designs, that's really talking to our target operating model. We did quite a bit of work with A.T. Kearney, a consulting house, to look at our distribution network, to look at opportunities for efficiency improvement and cost saving. We have been fiercely decentralized for many years. I like to use the word center-led. It's not centralized. We've got some new heads in the business that have come from the opposition who overcorrected in certain areas. We have the opportunity not to overcorrect and lose the wood for the trees. I'm using the word center-led. Certain services and shared services like HR and the like definitely should be centralized, but other parts are center-led. Where we're engaging with our retailers, that personal touch.
I'll use an example. We've got Dean Jankielsohn , one of our SPAR retailers, a prominent retailer in Piketberg in the Western Cape, and when fruit picking season comes along to Piketberg, he likes to negotiate a special deal for the staff members that are going to be working on those farms to help feed them. That's the personal touch. That's where we are agile. We can move quickly, and a corporate store manager cannot respond to that. We cannot. We've got to be fiercely protective about that interaction with our retailers. That's our secret sauce. At the same time, we are a corporate. We need to get efficiencies out of some of these structures, and that's what we're working on. Before I carry on there, let me talk to some of that. We have centralized our property and real estate businesses. It was decentralized.
You might not know, but we had property people looking after stores in South Rand and Joburg, in North Rand, Eastern Cape, and never did the two meet. So you had landlords speaking to six different people in this country. Not good for progress. It now sits under one house, center-led or centralized, and we are already starting to see some fantastic growth in that space. Our IT systems and our IT services, that's been centralized, and we are then with the just provide business support to our regions. We took massive costs out of the business by doing that, and we brought specialisation to hit the respective deadlines. So it was HR and our Bridget coming on board. It's business partnering for our divisions. We need specialists in this space, not a whole lot of generalists, and then merchandise.
Someone asked the question around merch. And you think, well, you're just going to centralize the commodities as an actual fact. A lot of that is sourced locally from local producers. The big commodity stuff we're going to keep in our regions is opportunity to centralize in some other areas. And we're working through that now with Gerhard Ackerman, a new appointment to our merch side. He was with Shoprite for close to 16 years, set up the Freshmark DC as well. He moved to Pick n Pay for a number of years, and we brought that expertise into the business because it also talks to product and price and pricing strategies throughout our format. So an aggressive play, and we're going to see some benefit of that.
That just gives you the center-led shared services design talks to operational efficiency, taking cost out of the business to keep our retailers more competitive and for us to drive our operating profit. The digital transformation, we've spoken about the Retail Media that's outside, I overlapped a bit there. Accelerate Spaceman, I didn't talk about. Spaceman is basically space management on shelf. It's having the tools to manage your share on shelf for your suppliers to make sure that we're not over-indexing on certain products and to drive our private label as well. And that comes at a cost to our suppliers. So you monetize that as well. But key for us in terms of making sure our ranging is right by format, by cluster, and by the communities that we service. Right. And there might be some questions later on. Just a quick snapshot.
Some of you haven't seen our full suite of distribution centers in the east end, south end, 64,000 sq m . You can see the picture on the left. And in all our distribution centers, we have freezer facilities at minus 15 degrees, chilled at + 2 and + 10, and we have ambient. That's how we warehouse. And we distribute on our SPAR trucks to our retailers, mostly on combined loads. On longer trips, we could split loads, ambient and drop temp. North end, just near Tembisa, looking after the northern part of inland and Botswana, 53,000 square m m there. That's headed up by Jerome Jacobs. Our KZN dry goods facility in Phoenix. Perishables split is within one and a half kilometers. We're going to try and get you to both tomorrow if we have time.
I think we're going to start at the DC, a quick overview of the site to Perishables and dry goods if we can. Yes, the team want to get you through. If not, you'll pick up very similar operations in the Western Cape, but we ran out of space here at the dry goods facility in Phoenix. We've actually bought that piece of land from Tiger a couple of years ago when I was based there, that big piece of land near the green patch. So there's room for future expansion there when we need it, and then KZN Perishables, 10,000 sq m . And top right, top left is a soccer field. There's room for expansion in that space as well. In actual fact, we're looking at possibly setting up some farmer distribution for KZN on this facility as well. We're having a look at that.
Well covered in this space. Mthatha is a satellite distribution center. People say, "What on earth are you doing with Mthatha?" Right by the airport. That enables us to position faster moving products, supplies delivered into that DC. We then hub and spoke or distribute to our retailers in Mthatha and surrounds, right down to Butterworth and all the way up back into KZN as well. Again, it just talks to lead times, talks to distribution costs. It's an efficient way of moving big volumes in those areas. And we have big, big retailers and big families that have a number of stores in that space. So it's a satellite warehouse. I don't count it as one of the eight. Okay. So when you do the numbers, you might think what's happening. We also have a satellite in East London, very small, in Polokwane.
And that's just from a logistics point of view to reduce transport costs to our retailers. SPAR Eastern Cape, you can see that green piece of land there. We're actually in the process of acquiring that to secure our interests in the Eastern Cape from an American company. But 46,000-odd square meters, again, doing the same in terms of drop temp and groceries. Western Cape, you're visiting Martin and the team on Friday. And you can see here, we have the luxury of going greenfields. And you can see how we've pieced on bits and pieces of this warehouse as we've grown. That was by design. We've got extra space at the back there and some space over here. So Martin will take you through that. And some of our operation DCs are across the road. Lowveld, the old Christie family.
It was the last independent wholesale business that we acquired before we could list, and one of the old girls in the business and from a DC perspective, but really serves a great purpose, run by William Linnane and going into Eswatini and Mozambique from there. And then our new baby that's joined the group. Bruce opened this distribution center how many months ago, Bruce? Eight months ago. It's consolidation, again, trying to reduce costs. We used to have distribution facilities at the port in Durban. It's based in the east end, located in between our north end and south end division, purely focused on private label, consolidation, and redistribution. And a really, really world-class facility there. Okay. Our strategy for Southern Africa, looking at the time, we have a strategy. I don't think you've seen it.
It hasn't been exposed to the market, so we're doing that for the first time. But it's been in play for now just over a year. And really, our why, our how, and our what, based on Simon Sinek. Our purpose, our why, is to inspire people to do and be more. We've spoken about that. Our vision, first choice brand in the communities we serve. That's what gets us up every day. And any solutions we have for our retailers should be assisting them to achieve that. And then our strategy is just the strategic plans and objectives that we've set for ourselves. So vision and purpose, we've covered. There are four key areas that we are driving. At the heart of what we do is future-fit retail partnerships. I'll just talk through some of the highlights there. Our customer-driven engines of growth, that's the exciting part.
Retail media accelerates. Spaceman all talks to that. Sustainability, we like to think we lead here. Kevin O'Brien, some of you might have been exposed to him. A really big and good thinker in this country, and it's what are we doing with our supply chain from a sustainability perspective, and our organizational transformation really talks to center-led. What are we doing? What does our organization look like going into the future? We've gone through massive change in the last 24 months, and it's about settling that down and being very clear and direct as to what we're going to do and how we're going to support our retailers. I'm not going to bore you on all this detail. I think the packs will be handed out for those that are interested, but I just want to show you under the covers that there's a plan and a well-articulated plan.
But really, this focus is on our retailers. What are we doing to drive retailer businesses? There's four key areas: future-fit purpose, retailer development. I've spoken about that. We really believe strategically we could be the home for empowering previously disadvantaged retailers and all retailers into the SPAR brand. And we need to do that responsibly. Succession planning, our current retailers, there are a lot of good second and third generation retailers coming through. Retail is difficult. You don't want to learn mistakes, relearn mistakes that your folks had learned 10 years ago, 13 years ago. I'm encouraged by the amount of youngsters coming through, brothers and sisters. We've got to make sure that we are key. I mean, we had one of our top retail families, the Maluleke family, Dan, who had a lot of stores in the inland area, pass away suddenly.
We had to work through succession planning within the family. This is a practical issue we deal with as a SPAR brand with voluntary traders to make sure there's continuity in the business while the succession planning takes place and to make sure the succession planning is capable of running these big businesses. It's working around that and engaging with our retailers. Really, SPAR Modularized Offerings or SPAR Concepts, all the concepts we have in store, Chikka Chicken concepts, coffee concepts, our HMR concepts. We're going to talk about it briefly with Bruce. Then our MOI and MA, it's our membership of an incorporation, our membership agreement with our retailers, making sure that's fit going forward. There's some key measures there that we've talked about. Our B-BBEE retailer growth, we're now at a level four.
We actually got to level three as an organization, discounted to four based on procurement, but it's market leading in the retail game. And we believe there's a great play there because it's the right thing to do, not because we were trying to tick boxes. Our corporate store. I use the word optimization. It's getting rid of the bleeders, making sure what we've got is making good profit for us and is structured correctly. And then retailer profitability is at core what we do. I'm going through this quickly because I only got 45 minutes. I'll leave 15 minutes for Bruce to talk through private label. Customer-driven engines of growth, really another exciting piece. This is the customer focus.
And like Angelo said, we've got our retailer focus, but we also need to be looking at the shopper and the customer and providing that professional insight with tools that our retailers can use to drive their businesses. And really, what is it? Formats of the future, our segmentation around formats, e-commerce, supermarkets, which is a SaveMor soft discounter, specialized businesses. What are we good at? Fresh HMR and our private label, making lives easier for our customers, one-stop shop. We want to keep that customer in our store and not go shopping elsewhere. And then our sponsorship triangle of nutrition, education, and women's empowerment. I think people that know SPAR, we've always sponsored women's sport. We've been at the forefront of gender-based violence campaigns. It's in us. It's what we do well. And we just got to double down and refocus on those three areas.
Penetration around value-added services, our retail media we've spoken about, food to go, rewards, and then priority geographies. We under-index on a market share in the Western Cape and inland. We know what those are. We've got plans to start moving that share and that growth through new store openings, so my teams are working towards targets and goals to start shifting the dial in that space. It's not going to happen without focus, and there's a whole lot of measures around that that we put on ourselves. Our organizational transformation, employee-focused, really center-led and regional services designs. That is the word. It's not centralized. It's center-led and what are we going to share across the regions? We're not going to talk any more about that. Then lastly, our sustainable supply chain, who are our partners here?
It's suppliers and our ESG stakeholders as a responsible corporate in this country. The circular economy and the solutions in our packaging, our bags, in our distribution centers, food waste, long-term supply security. What are we doing to vertically integrate our suppliers with our second and third tier suppliers? You may or may not know, we've had the rural hub. It's been going for close on nine years. It's a collaboration between ourselves, government, and actually the Dutch government initially. There was funding from them, but we have 12 farmers, fully sustainable, making profits in the Limpopo area, and 70% of the product we grow there comes back into SPAR. The balance goes to our competition, and that's okay. We want to make sure our farmers that are funded by us are sustainable.
We need to challenge us to try and bring as much of that into our SPAR ecosystem as we can. But if we can't use all the product, then it can go through to our distribution, no problem at all. Then the right energy solutions being in South Africa, that is key, driving our retailers in this space to reduce operating costs, excuse me, and for our distribution centers. You'll see in the Western Cape, for those that are interested in this side of the business, we have done all we possibly can with solar generators and making sure that we go green in that space. Right. Okay. That gives you a snapshot about our strategy, high level.
This has been socialized with our retailers over the past year and a half, our businesses, and all the micro plans that come out of it are centered in those four key areas. SaveMor. I've been getting quite a lot of airtime. This just gives you a feel for what it will SaveMor, and I want to talk through the format and briefly what it does. Our target market here is SEM123. Okay. So it's not Umlazi, KwaMashu. Those are pretty developed nodes. Okay. It's an emerging market, but it's not deep rural. The store size here will be close to anywhere between three and 800 sq m. Small store format, simple trading, and like I said, empowering new entrants into this market. Our site opportunities, informal independent retailers and greenfield sites. That's our play.
Our objectives, low-cost profitable retail model, meaning low on CapEx, and it needs to be low on OpEx, simplified to 3,500-4,000 SKUs. I'm jumping ahead of myself here. A structured format with clear guidelines. Up until now, SaveMor has been we have SaveMor in urban areas, SaveMor in rural areas, and we've allowed the retailers to bastardize some of the stuff because they are great butchers, bakers, or candlestick makers. So it's about being a bit more structured in this space to help our entrants into here. Low-cost entry, like I said, standardized designs, making sure there's some turnkey designs for our new retailers in the space that makes it effective to run. If we can run those businesses at a gross profit around 15%, your costs need to be quite low, then you can really trade in that space. I'm not sure.
I should know this. Are you going to SaveMor, Marina, in Craighall Town? Okay. Great store. In between two Shoprite Checkers, I was telling someone in the elevator today, both those Checkers stores doing ZAR 30 million a month. Okay. We are slap bang in the middle. A little 800 sq m SaveMor, doing ZAR 8 million-ZAR 9 million. Okay. You must understand what kind of money he's printing and what he's doing. He's carrying too much stock. The range is too big in my view. But a great retailer comes from a butchery background. Have a look at his butchery. Probably carrying a few too many lines in terms of the business model. But that'll give you a good feel as to what we're looking to trying to do. Okay. There's opportunity he has now. He's just joined us in the last 18 months.
He's now got six SaveMor stores with three to roll out, so it's a great look into what we're trying to do. Unfortunately, you can't get to King William's Town, Nick's Foods, our biggest SPAR store in the country. Can you believe it? Throughout the year, our biggest turnover store, 50 m down the road he's got a little SaveMor, doing similar numbers, ZAR 9 million-ZAR 10 million out of 6,700 sq m, and he's really customized to his community. The circumcision ceremonies that happen there every year, you go into a store, it's like being in a Harry Potter store in England, but for South Africa. You can get anything and everything you need, from the blankets to the whistles to the respective medication you need, customized to his community, so there's something really exciting in this space. Those are our top retailers.
What we have to do is provide strict guidelines to make it a bit easier for any new entrants coming in. Okay, so yeah. Reduced operating costs, obviously. And thus, okay, we've got a marketing plan now. We've launched in February to support this. You can see the SKU count of what we're looking at. Wayne Hodson, who used to run our Polish operation, has come back to South Africa. This is his focus. Okay. He grew up in SPAR South Africa, coming from our corporate training college many years ago, and we've done some look and learns to Poland, not to look at our SPAR stores, because that's not an example. It's to all the discounters like Biedronka and alike in Poland. It's a similar market. A lot of small stores doing very well in that space, and we've obviously done compared to our market here.
We believe we've got the right solution for this space. Product development, private label, good quality at the right price. Bruce might show you some of the private label products we've developed for the lower end to fight the proliferation of the cheap products in our stores. Value-added services are key. Mobile, couriers, SASSA, and financial services. That'll be in that space. The key departments are frozens, meat, and HMR. Okay. We need to have those offerings in our stores. We're not going to discount that away. Our range. SaveMor Liquors, they've been the red-eared stepchild for a long time. I used to only punt TOPS because it was such a good brand. Even the deep rural communities who were setting up half-spec stores have shifted.
I've had my team put me under pressure saying we need to have a SaveMor liquor solution for SaveMor stores. Lower cost, simple as that. Again, same concept as here. And so Thami is doing a store of the future for SaveMor liquors. Obviously, we'd upweight quarts and beer as opposed to some of the high-end liquor offerings. And again, an opportunity to grow our business within the limitations of our model. A really big upside. Okay. And I'm going to leave the look and learn. Please try and get to see Nenad in SaveMor Marina. Good feel for you. Okay. On the Gourmet side, this is the upper-end side of our business. Our target market, 7 - 10, really niche. The high-end residential, urban transient sites, small supermarket, fresh food store. And our opportunity here, we talked about format segmentation.
We've got a lot of formats. We understand in SPAR, our customer doesn't understand. KWIKSPAR, SPAR, SUPERSPAR, Mass SPAR. One's more expensive than the other, and we don't know why. Okay. We have to get that right positioning with our customers in South Africa. We have too many formats across the stables. Our intention, I'd be careful, but where we're going with Gourmet is we have a huge KWIKSPAR footprint in Southern Africa. Our niche KWIKSPARs play up into Gourmet, and our not-so-niche KWIKSPARs can play into SPAR. Okay. And so we have an opportunity to rationalize our formats going forward in line with some of the market trends. Okay. The objective, three key shopper missions. Food for now, food for later, and a top-up shop. You've got to have some groceries, but it won't be the key focus.
It's reasons to shop in these stores with inclusive strategic partnerships. We have signed an agreement now. I can say this with Darren Levy and the Vida team in Cape Town. They will be in every single one of our Gourmets. We have two partnerships now. We've got our in-house Beantrees partnered with Lavazza for the majority of our stores. This is a franchise within our stores with our SPAR retailers. Obviously, that franchise fee is at a discounted fee because we've negotiated a deal with Darren and the team. They've fired up and excited to get that footprint going again. They lost it in KZN a while ago. We are excited. We believe it's a great partnership, similar-minded, and that is not negotiable. You're over Gourmet, you've got to Vida in your store.
This Vida offering can go into our normal SPAR stores that the market sort of suits for it. Knowles is an example, SUPERSPAR. They've got a Beantrees, but he's a sit-down restaurant for middle to low-income individuals, and he offers an extensive range, making good money at good gross profits. We're saying to Roy, Roy, the Beantrees solution is good for you because it gives a retailer the flexibility to do their own thing. Okay. They're famous for samosas or burgers or whatever. Within Vida, there's no discussion. The rules are the rules, and that's how it's got to work. So we've got two solutions for our retailers, whatever works for our market. Frozen For You, again, will be in all our Gourmet stores and extending that to some of our back-of-house production as well. So it's these kind of partnerships that we're looking at.
We did trial partnerships with Marcel's. It's really the Cape Townians know Marcel's well. It was in three of our stores. It wasn't Starwood. You're going to go see Starwood today. It's not working. We try something, fail fast, move on. We aren't continuing our partnerships with Marcel's. This is really high-end margin retail model, Sea Point, Rosebank, Pineslopes in Jo'burg. There's opportunity to convert these niche retailers to this format, like Bedfordview. If those of you that live in Jo'burg understand George Costaras , one of our niche niche retailers, this is a solution for him and very excited to change. Okay. We're giving our retailers opportunity plan. We see 30 - 40 stores nationwide.
It's not going to be a big sale for us, but it shows our customers we can play in that space and just differentiates our high-end niche stores from the balance. Our big play will be in the SaveMor space from a growth perspective. But this is important. And our pillars, easy shopping, smart proximity, top-up, and the like, differentiated ranges, bespoke offerings. You'll see Bruce will show you some of our SPAR Signature Select range, high-end, that is compulsory in these SPAR Gourmet stores and is open to other SPAR retailers. So some really good work happening there. And then playing in the indulgence fresh space. So that gives you a view. We don't have a store open yet. So we've been partnering with our SPAR International colleagues. Our SPAR Austria have quite a few SPAR Gourmets overseas.
We've gone and met with them, stolen a couple of ideas, but Africanize the solution, which is quite important. A lot of our competitors, when you think niche Gourmet or you're in banking, you think black. Okay. Black stores, black cards, and the like. We don't necessarily believe that's South Africa. In terms of that color, we want to have a bit more lively store. So here's some artist impressions of our first store in Zimbali Oasis. You can see our partners in Vida in there. And you can just see what kind of, oh, okay. My presentation has been cut. I had about five slides. They're saying, "Thank you, Zinhle, keeping me tight." Okay. So I've only got one picture to show you. 1 August, we're going to go live. For those that are interested, come and visit us, and we'll take you through the stores.
We're partnering with our niche retailers, the Anderson family. They're in Umhlanga across the road. They're in Park Square. Just up the road here with airplanes in the store and the like. And they've taken over KWIKSPAR. So that's the kind. Those are our Bedfordview and George Costaras , niche individuals. Paul Jason, you're going to see at SUPERSPAR Salta. Also, niche retailer. This is where Gourmet plays in, is to give those retailers a bit of license to show off and do something special. So yeah. Okay. Then I'm going to leave you with a video. My Afrikaans growing up in KZN, my Afrikaans cards are not so hot. But it was an influencer. We just opened up a new SUPERSPAR in Outeniqua. It's called SUPERSPAR Outeniqua in George with Chris Christodoulou, a really top retailer from inland.
And he's put in a big SUPERSPAR in George, a beautiful store. If ever you're there, you need to go and visit it. And we just thought we'd give you a feel for the upside of our formats as well. And this influencer did a whole thing on his store. So if your Afrikaans is good, you're good. There's enough English to understand. Enjoy this little video clip. Can I go?
[Foreign language] .
So just closing off. You know, Angela said earlier, what we do is create a platform and parameters for these independent retailers to make magic. Chris is a phenomenal retailer, multi-store owner. He's got six stores up in the inland area. And where we're good, we're very, very good. Our challenge is to keep that tail revamping and focused and getting that growth. And hopefully, you'll see a good myriad of our stores in all the communities within which we trade. We've got to keep our retailers empowered, but also driving ingenuity with things like our retail media opportunities for income and spend and connecting some of the digital stuff that we're doing at the moment.
I hope that gives you a feel of what we're doing. I'm sure I'll get some questions just now. I'm going to hand over to Bruce Hughes. Like I said, we just bought his business. We finished that transaction this year. Passionate SPAR man. We believe it's a secret sauce with only retailer that owns its own private label business. There's a bit of nice vertical integration happening in this space as well. There you go, Bruce.
There we go. Can you hear me? I'm going old school. I'm not all geared up. I'm just going to give you a quick overview. I know time's precious. A quick overview of the SPAR private label program.
I'm just going to give you and share with you some key growth nodes and opportunities for us going forward, and certainly in the short to medium term. The key question is, why private label? Why do retailers have it? The key thing for us, and today we've spoken a lot about loyalty, is that one of the key levers that we can pull is to create retailer loyalty. It's not only loyalty for the retailer, but of course, it's loyalty for the retailer for its customers so we can keep getting people coming back to SPAR and getting feet into SPAR stores. Private label is one opportunity and a big lever that we are able to pull. The other thing for us is that we've got to make sure that our private label program at SPAR is better and certainly more appealing than the opposition.
Again, reasons to come to SPAR. The other big lever to pull and to also utilize to our advantage within SPAR is to keep the big branded companies honest. So most multinationals today will share with you that their biggest competition is the retailers' private label brands. The retailers have been extremely aggressive internationally and certainly within South Africa of developing products and categories to be able to compete on par with the big branded companies. And today you're finding that many categories are led by private label, and we've certainly seen that in the SPAR world with multiple categories now led by SPAR's private label program. We've got over 5,000 SKUs now within the program and a 23% representation. Let's not forget all of you in the room, also customers. And we've got to make sure all the customers are happy.
Gone are the days where private label or traditionally house brands were purely sold on price, and they were given to manufacturers just to manufacture the cheapest possible spec. This evolution of private label has developed over the years and has driven a hell of a lot of innovation. Today, many categories are led by private label, as I've explained, but in doing that, there's a massive amount of backend that needs to go into sourcing the right supplier partners. You've got to definitely select the right product, the route to market, and making sure that you've got efficient and professional teams manufacturing, I mean, managing compliance and regulations that we're able to stand behind as SPAR does, as own brand guarantee, and as good as the best for less.
These are two key reminders for us at SPAR, and that's always allowed us to keep the customer front of mind for all of us. Just to share with you, in the last 18 months, we've tiered the SPAR's private label program over 5,000 SKUs. We now have an offering for all customers in all formats. You can either upweight or narrow the offering depending on what store format you are, and also for the retailers, we have now got options to service the communities. We've segmented on the retail side into signature selection, which is a top tier, which Max explained, and that's for the discerning customer. We have the SPAR brand, which is the majority of where the volume sits, more than 80%, and that's for the savvy shopper that's seeking value, and then we've got SaveMor, which is the bottom tier.
This is really for the disciplined customer seeking price. But again, also value attached to it as we do want those customers to come back and buy the product. We are spending a lot of time and energy and updating our SaveMor innovation funnel to meet this growing segment within SPAR and also to support the group's strategic initiative of the rollout of SaveMor stores. The same as in the retail space, we've now segmented all of fresh into three categories, which is the butchery, bakery, and the produce side. You'll see at the bottom there, we've introduced the country values, very similar to the SaveMor range. And again, this is just to be able to sell all of our fresh offerings now to all customers that come into SPAR.
Of course, in the categories where we have executed these changes and where we have found that we've got the best growth areas within the fresh space, we are now going to be spending more marketing time and more money and actually talking directly to the consumer and the opportunities and the innovation that's coming in the fresh space. Agile and confined brands developed in the first world. This is part of the new evolution of private label that's happening. It's really exploded. Retailers globally have not relied on international branded companies for innovation. They've now gone and developed and created their own brands themselves. In SPAR, we have started this process, and it's been very successful to date.
There's also opportunities where the traditional house brand, you could really change the value perception as a customer and rather not try and develop and grow a traditional house brand in certain sectors, but rather develop a brand and market a brand as an own brand, owned within SPAR. The categories that we've entered into the space, you can see in personal care and home care and in baby, where we've entered into the own brand space, we've seen a remarkable difference in a customer acceptance into the own brand and no longer the traditional house brand. So key focus areas for the private label and growth nodes for us to get more shoppers and to get more revenue is with our own in-store activation team being engaged, which was explained earlier by Angelo.
We have an ability to push forward share on all the private label offerings to make sure that we are able to show this to the customers, a dedicated marketing team focusing direct marketing push through to the customers and treating the private label as traditional brands, and then let's also not forget we are in FMCG, which is fast-moving consumer goods, and there's a world of speed. There's a customer expectation of innovation. In the world today, we operate on, if you're not fast, you're food, so we have to stay abreast of all these trends, all these opportunities that are happening within South Africa and globally, and make sure that we're developing products and creating all forms of innovation to serve the customer. More areas of fresh that were big focus for us are our in-store concepts, as Max mentioned, of Chikka Chicken and McCoy's pies.
We're running a special. If anybody's interested, you can get two pies for ZAR 60 at SPAR. They're nice and big, 250 grams of pie. So that's one of the key campaigns that we're going on at the moment together with Chikka Chicken. This forms part of our HMR offering in store. And again, this is a competition to the QSR sector within the retail side. There's also a new launch of SPAR Good Living, which is a general merchandise brand within SPAR. It's a brand that's going to be used for SPAR globally and used as their private label within the rest of the SPAR countries, which is a real win for SPAR South Africa.
It's an offering of value for the customer, and certainly in the rural stores and rural areas, is that you can create then a one-stop shop solution where the offerings for customers to buy those types of products are quite limited. Exciting space is the new division of Engen and another nice growth opportunity for us. There's a small beginnings at this stage. It's only a few months old. We will be starting out with wine and private label with a 6% share as it currently stands, with a nice growth and target set by the group for us to get up to 20%. This is led mainly by the U.K. markets or European markets now, where 50% of all wine sold in Europe is actually under private label. So the opportunity is there for us.
Not forgetting that we don't only sell wine and TOPS in South Africa. We're also able to sell wine in SPAR stores. This is also going to help us clean up the wine category. I'm sure you all have the same experience. When you go to a wine shelf, it's quite confusing, and together with this private label and the rollouts of it and the confined brands to SPAR and dedicated brands, we're going to be able to help with the wine shop for most consumers, so wine will be where we start. We've got some exciting rollouts that are going to happen where we're going to sell wine in a can as well as sparkling wine in a can.
We've got BIB, which we call bag-in-a-box wine, with a new launch of Carnival, which is quite a funky packaging that will be ready to go to market now in the next few weeks. There's going to be exports and imports opportunities. There's also going to be opportunity for us to grow brands in on consumption and then sell them exclusively into SPAR and TOPS stores. That's just some picks of the exclusive wines that are on offer. Next time you're at SPAR or at TOPS, you can go and have a look at them and pick them out. That's the Olive Brook range, where a majority of the volume is sold at the moment, and is our oldest range within the private label space.
On the left-hand side is a premium range of Olive Brook, as well as some exclusive ranges, which I'll share with you, which is Shortwood on the right-hand side, and then Bruce Jack, which is exclusive to SPAR and TOPS as well. Interesting though, that Bruce Jack at the moment owns 20% of the whole of the U.K. wine market. It's a South African wine with a South African winemaker, and Jack on the, I mean, sorry, Bruce on the label is probably one of our most recognized wine makers in South Africa. So a great brand to have exclusive for TOPS and for SPAR. And then newly to come with into the market was a full range under a brand called Meander, again an exclusive brand for TOPS, which is going to again help rationalize the wine shop for the consumer. That's all from me.
If there's any questions before Thami takes over.
All right. Sounds like I'm on. Good afternoon, everyone. I hope you're all doing amazing this afternoon. My name is Thami Silwana. I am the Liquor Executive for SPAR. Just waiting for the deck to come up. Yeah, I do tend to speak a bit fast or with a bit of passion. Trust you me, I have not had my tequila for the day, so don't think I'm speaking fast because I've had a drink, but looking forward to having a drop or two with you guys later on. Super excited to talk about our TOPS brand. And really, ours is a brand, right? Everyone else has a liquor shop. We've got TOPS, and that's super amazing. In terms of what are we going to talk about today? We'll touch a little bit on just TOPS, our history, where we've come from.
We'll touch on the industry itself. What are some of the trends within the liquor industry? And then we'll kind of touch on our strategic outlook in terms of where we're taking this TOPS brand going forward. So by way of just overview, ours is a maverick brand that pioneered what is now the modern liquor store. Before TOPS, what existed? It was effectively what they called drankwinkels . It's like literally if you went to a liquor store, you were considered a drunkard. And then TOPS came about, right? And what did we do? I was told a long time ago is that businesses exist to solve problems, right? And what was the problem that we were solving for? This was the problem for us.
How do we have a liquor environment and a store environment that is female-friendly, that is close to our current shopping, that is clean, bright, and visibly safe, but also that has a cheeky sense of humor? And so we started some 25 years ago with 16 stores, and you'll see later on now, today we sit at over 900 stores if you look at from a Southern Africa point of view. But this was the problem that we were kind of solving for. And just talking about cheeky, this is just some of the communication that we've put out that really kind of speaks to this cheeky brand.
This is the drink Dale had when he tried bonding with his future father-in-law. I'm going to go get some wood. This is Dale. Finding a cliff. This is Dale's new look.
This is Dale finding beans, making his way up a cliff. This is a dot. Dale? Welcome to the family. Dale TOPS. Where great stories start. Not for persons under the age of 18.
And positioning, right? With this brand, where great stories start. And I think you can see this kind of communication that really kind of speaks to that. Where are we right now? As TOPS, we continue to lead the market from a store footprint point of view. This is just South African numbers. As of end of December, very much kind of leading the market. I mean, like you'll see the second is effectively two store entities that's kind of merged in one. So we definitely, I mean, like we're massive.
Yes, our competitors are building a lot more stores, opening a lot more stores at the moment in terms of trying to catch up, but we continue to lead the market in that regard. What is the value proposition that we offer to our retailers? Firstly, a strong distribution network. I think Max spoke about the seven distribution centers that we have, which means we're able to get product to stores a lot quicker. Wholesale pricing for independents. And I think for us, that's a very important point is that our independents, without the power of the TOPS brand, would not be able to kind of get the kind of pricing that they're able to get. Entrepreneurial flexibility within what is a structured brand.
If you think about it, some 900-odd independents that all think, behave, and do things differently, but they're able to kind of do that entrepreneurial flair within what is a structured brand. And then all our promotional activity, talk about it being data-driven. I mean, like we've got over 30 dedicated liquor experts around the country. All they do is live, breathe, think liquor. They go to regional promo committees, regional marketing committees. They come back and say, "This is the products that are in demand. This is what customers want. And therefore, these are the products that we're going to promote." So whenever you see any of our leaflets, trust you me, that's not just someone who just thumbs up to say, "We're going to promote this product," but actually it's come from some serious science based on all the dedicated people that work within our business.
Maybe just one more for our ads that really kind of talks to this where great stories start.
This is the drink Tibbs had when he decided to try a dating app. Have a seat. Go and meet Nigel. This is Tibbs putting on a brave face. Hey, buddy. Turns out this is not Nigel. This is Nigel. This is them back from the vet. Good boy, Nigel. TOPS where great stories start. Not for persons under the age of 18.
Yeah, so this is just some of the amazing communication material we've put out. But just looking at the industry, some of the key industry trends, I think the first one is we're seeing industry consolidation. We've seen it with SAB and AB InBev. We've seen it now with the Distell and Heineken. So a lot of more consolidation that's kind of taking place within our industry.
And then we're also seeing this shift in consumer preferences, especially post-COVID. So you're seeing this top-end premium spirits really kind of growing. And then we're seeing the fridge growing a lot more. And that fridge really speaks to value. And so we talk about LADs, which is your low alcohol drinks, or sometimes referred to as long alcohol drinks, which is effectively all your beers and ciders, everything that's effectively below 6% ABV, and then you're ready to drink. So we're seeing quite a big growth in that regard. We're seeing this growth in corporate-owned liquor stores. And so effectively, there's a lot more independence being absorbed within what would be corporate-owned stores. E-commerce, I mean, like delivery has become huge. And so big, big focus on our side from a TOPS to You point of view. We're also seeing this rise in illicit and counterfeit.
I mean, like illicit and counterfeit now contributes about 22% of liquor sales. I mean, like illicit is effectively where government gets shafted from a taxes point of view. And then counterfeit is where customers are getting shafted in terms of getting fake alcohol. So big, big trend that's kind of taking place. And so a lot of work that's happening there from an industry body's point of view in terms of how do you curb that. And then from a regulatory environment, I think just a lot of considerations in terms of what do more stringent alcohol laws look like. And some of the conversations taking place is around, for example, minimum unit pricing as some of the things that are being talked about.
If you look at from a data trends and what we've seen, I think the first one is definitely. I think post-COVID, I think we've seen this major shift in terms of consumption. I think what happened in COVID is that because there were limited opening times, effectively customers got into this habit of chasing or drinking quickly. And so these tequilas and that chase market became quite big. And that trend has kind of stayed. Why? Because people had to drink quite quickly. So that trend has actually quite stayed on. And so if you look at your high-end tequilas such as your Don Julio's, I mean, like these brands are really doing quite well at the moment. And I think that's one of the post-COVID behaviors. We're seeing this sales mix that's kind of trending towards value.
So for example, I mean, like quarts are now back in fashion. Imagine that. I mean, like the number one selling SKU on SPAR2U, i.e., our delivery service, is guess what? Carling Black Label 750 ml quart. So quarts are back in, and it just tells you just that sales mix. LADs, i.e., your low alcohol drinks, these are growing faster than the market. And on our side, what we then tend to see is the margins that you now get under pressure on because your LADs effectively are giving you lesser margin than what a spirit or wines would, for example. So it's just quite a balance we need to kind of have in that regard. We're seeing economy wines, bag and box, again, going ahead of the market.
So, your three liters, one and a half liters, I mean, like you go pretty much to most stores now, and literally it's wine now comes in a box. And that's just really this move more towards value. And then your big bankers, traditionally big bankers such as whiskey, we're seeing those being a little bit more muted. But also this extremely competitive market that's causing pressure on our GPs. I mean, like the more stores open, the reality is customers benefit out of that, right? Because now everyone has to be a lot more competitive from a pricing point of view. So definitely beneficial to a customer, but obviously it does kind of put some pressure from a margin point of view. And so just expanding on these shifting consumer preferences, I think our customer is a lot more price sensitive.
I think since 2020, I think prices are about 20% higher. So customers are a lot more price sensitive at the moment, seeking out a lot more value for money. And so that's why we're seeing beer quarts, bag and box being quite big, switching to kind of more affordable options where necessary. So we're seeing private label and even prop and subprop price points. So if you look at from a spirits point of view, the price points are around ZAR 150, being quite big. And pretty much customers would say, you know what actually is, I'll have a Johnnie Walker Red Label as my standard drink. And that's typically what will have been a Johnnie Walker black label customer saying, you know what actually is, I'm going to stick to Johnnie Walker Red Label. Why? Because I can get that at about ZAR 200.
And then only for special occasions, I will whip out that Johnnie Walker Black Label. So big trend in that regard. Shopping on convenience, big, big, big, big, big, big, big. I mean, like right now, pretty much you take out your phone and that's how you can shop. Younger demographics very much inclined to ready to drink. So your Berninis, I mean, like right now the Bernini mimosa is the thing, right? I mean, like it's no longer, I go to and can you please mix me a mimosa? Now effectively you can get it in a can. And so big, big, big trend in that regard. But also another really kind of cool one, and we're kind of looking at ways in terms of how do we really play in that space in terms of this alcohol-free or low alcohol movements.
I mean, like your dry gin movements. I mean, like some people say, it's because customers don't have money. But it's becoming a thing where customers are saying, look, I want a Savanna, but can I rather have a Savanna that doesn't have alcohol? So big trend in that regard. And then just an area that we really believe we can really kind of set the scene and set the trend in terms of becoming what we call responsible agents. If you think about alcohol, ultimately you're dealing with what we call a psychoactive substance. And so from an illicit point of view, I've spoken about this point in terms of 22% of liquor market being illicit. We need to be a lot more responsible in terms of what we're putting out there.
How do we assure customers that indeed when you buy your Hennessy at TOPS, is that actually it is a genuine Hennessy? It's not the fake stuff that potentially you can find out there. Alcohol abuse, 59% of South African drinkers are classified as binge drinkers. That means you're having more than five serves per sitting. Look at some of you guys and you're thinking that could be me. But yeah. So again, just it emphasizes the point around just how do you become a lot more responsible in terms of how we trade liquor in our country. It's a dangerous product to society. I mean, like road accidents, homicides, a lot of these tend to be attributed to when someone has been highly intoxicated. Then the last one in terms of the fiscus impact.
I mean, like alcohol or the liquor industry contributes around 3.5% to our GDP. Employees are around 500,000 people, but it eats out around 12% to the GDP in terms of the accidents and all of these things that take place, and so that's why we really believe that we can become responsible liquor agents and really become a responsible alternative when it comes to kind of liquor, and I think it's a unique opportunity that we have as probably one of the biggest liquor entities that we have in the country, so you'll see a lot more focus from us in that regard.
I mean, like simple example, some of the things that we're exploring right now is when it comes to our delivery service with SPAR2U, a world where whenever you order anything from SPAR2U, you get a free Uber voucher with that. Because the message we're sending is that we want you to drink in the safety and comfort of your home. But if you're going to be stepping out there, we want to make sure that we've got you covered from an Uber voucher or a take me home service. So these are the things that we're really thinking about to say, this is how we're going to lead the market. And we're committed to leading with responsibility. And this is just all the things that we do from a responsibility point of view. We run responsible marketing campaigns.
We belong to organizations such as the Drinks Federation of South Africa, Aware.org. All our liquor store managers are registered. So these are all the things that we do from a responsibility point of view. But what we believe is we can really kind of push through a lot more in this space. And then just moving forward in terms of from a strategy point of view, I think the liquor retail environment has really changed. And I think for us, these are just some of the biggest changes that have kind of taken place. And so we've kind of looked at what is really kind of going on and how do we really set ourselves apart going forward. The first question we have to ask ourselves is, why would someone choose TOPS these days?
If you think about it, I mean, like a lot of the factors that we became famous for and what we traded on historically have actually been caught up, right? Convenience. I mean, like now pretty much, I mean, like through your phone, you've got access to any liquor store that you want. So effectively, you're no longer potentially the most convenient. We used to be the only brand that does marketing. I mean, like now you switch on your TV and everyone else is communicating. With this inclusive brand that had these amazing looking stores, the reality now is everyone has a nice looking store. Can you compete on price? Not really. That's not the area that we want to look at. And so that's why we believe that there's this opportunity to reimagine what that TOPS value proposition looks like.
And so it's an exciting space for us going forward to see what does that look like. Since COVID, I think a lot of the stuff that we used to do, so your events, activations, beer festivals, wine festivals, that got disrupted during COVID. And so we're looking at in terms of what does that share of voice look like beyond just broadsheet? Because right now we've become so reliant on just leaflets and broadsheets. And we're saying, how do we get back more into that really exciting engagement marketing type space that TOPS used to be famous for? There's more shopping options. And therefore, TOPS must reinvent to really kind of keep ahead. Responsibility is paramount. And we've kind of spoken about this. Loyalty as a growth lever. And I think this is a really exciting one for us.
I mean, like we say in liquor, what's unique about liquor is that how you grow any brand is effectively either penetration or consumption. I either get new customers or I make existing customers use more. In the case of liquor, do I want to get someone who doesn't drink to start drinking? No, that's not responsible. Do I want to get someone who drinks to drink even more? Actually, that's not responsible. So you then say, actually, you quite contrive from how you can grow. And so that's why we really believe that going through loyalty as a growth lever becomes really important for us. Why? Because we know that customers are shopping at multiple stores. How do you get them to choose you more than anyone else? And so that really is the big growth lever that we're looking at. And then margins being under pressure.
And for us, we're saying with our federal model is that how do you have almost this pricing and promotional sharpness in terms of really kind of behaving as one? Be it when we do our national promotions, when we do our regional promotions. But because with the model that we have, you've got a customer who can say, hey, I'm feeling under pressure, so I can just go and do my own promotion. But what we're saying is, how do you make sure that we behave as one in that regard? Who are we targeting? Currently, 28% of our customers are SEM 1 to 3. 46% of our customers are SEM 4 to 7. And 26% of our customers are SEM 8 to 10. 60% are male, 40% female.
What we are trying to do is what we're saying is we want to anchor this brand on that aspirational persona that says, how do we make sure that you're anchoring this brand on that SEM 8-10, but understanding that your source of volume kind of lives across. Now, what this really means is that when you put out an ad, for example, you're not going to have someone walking around with a parfait. It's probably going to be champagne. And that's really what this is kind of talking to, to say that's the kind of customer, and that's how we want to anchor this brand to say it needs to be aspirational. It needs to be inspirational. And so that's really going to be the big focus going forward. And so how do we make this great story even more epic?
This is effectively what we call our five-point plan. These are the five things we're focusing on going forward. One, organic lead growth. We're saying, how do we focus on what we have? So we may not necessarily be opening more stores, but it actually is, we believe there's a massive opportunity in terms of growing what we have, growing that basket size, focusing on how do we get beer in our portfolio growing faster than anyone else? How do we get ready to drinks in our portfolio growing faster than anyone else? So that organic lead growth becomes really, really important going forward. Redefining the TOPS value proposition. I mean, that's just a no-brainer. Everyone is doing what we're doing. Everyone's pretty much caught out and copied us. And so we really need to kind of shift the dial in that regard.
Going through loyalty, which is something I've explained now, and then expanding our private labels, which is what Bruce kind of mentioned. That's a massive, massive opportunity from our private label space. Exports, but also just things like the on-trade. I mean, like right now, Olive Brook, you only find it at TOPS. Imagine being able to go for dinner, finding Olive Brook at a dinner table, and then being told, by the way, if you want to buy the bottle, the only place you can get it is at TOPS or at a SPAR grocery store. So that really is the opportunity. And then kind of just really being purposely in terms of how do we lead with responsibility. And we really believe that we can become a responsible alternative in that regard. So yeah, that is my story. I'll leave it there. Cool.
I knew I stood between us and lunch. I did try to go as quickly as I can. Hopefully, I wasn't too fast. Awesome.
Thank you. I think we'll go ahead with Q&A just before lunch. Obviously, I know a graveyard shift.
Thank you. It's a question for Max. So I'm Michael de Nobrega from ABL. Just to confirm the split now that you're doing with the SPAR Gourmet brand. You mentioned that that's mainly with the KWIKSPAR. Is that going to be the size of the store? Is it very small stores? They're leaving it like that. The biggest stores will remain it. Then how do you view the price perception between the normal SPAR to SUPERSPAR and KWIKSPAR split? Because will there still be a difference in how you price between those?
Yeah.
So, the Gourmet is niche, so it'll be a more expensive offering and gives our retailers a bit more margin. And I think it deserves that with the products you carry. And yeah, we see, like I said, our KWIKSPAR is playing the niche ones playing up, and the rest is going into SPAR. The differential between SUPERSPAR and SPAR will still be there from a pricing perspective. SUPERSPAR is a big box format for us, doing volume. SPAR, more of an everyday shop. So what we are working hard on is our pricing strategies now to fit the formats. I mentioned Gerhard Ackerman has joined us from the opposition, and that's what we need to double down on and be very clear on that pricing strategy across rationalized banners in our environment. Does that answer your question?
Yes, thank you.
And then the next one is just on SPAR2U. So I know SPAR, the head office initially funded the SPAR2U for the different stores. Have you moved those costs towards the retailers?
No, the majority of the costs is with us. The retailers do pay a nominal fee, but still the bulk of the costs will be funded by us. And we think that's right in the medium to short term just to get it moving. Again, it's about providing a platform and creating that platform. We've got to play catch-up for our retailers. Individual retailers can't fund that. And that's the play between ourselves and our retailers. I think that's the right thing to do.
I suppose my question is also for Max. If you could just help me understand something, because a few times during the presentation, you guys did touch on store expansions.
But given you have a voluntary trading model, not a corporate-owned model like some of your competitors, how exactly would you go about the store expansion? Would you have the white space ready for potential retailer? Would you approach your existing retailers to expand those stores? How do you entice new people to join you guys that way?
Yeah, so I just want to just clarify. It's not an excuse not to expand. So we've got 87 stores we're planning to open this year. And we're in the process of that. 17 of those will be SaveMors, and we are setting some bigger stretch targets there. So it's considerable, maybe not as aggressive in some areas. SaveMor will pick up with a new pipeline. But there's a number of ways we grow. Our retailers come to us, and they want to extend stores.
They know the niche opportunities in the markets they serve. They'll say, "I want to put a SaveMor here," or, "I want to open up another SUPERSPAR down the road." So they come to us for sites, which we then professionalize with the respective landlords, make sure that the rentals are right and the metrics are in place. So that's the assistance we provide. We also, like I mentioned, there's two big geographies that we underrepresented from a share perspective. We then map and identify gaps in the market where we can play. There's still plenty of opportunity without having to cannibalize on our current business. I mean, we've got to put up sustainable, profitable stores, not short-term growth. But I don't want the room to leave to say, "Well, SPAR is not looking to be aggressive and opening new stores." That's not the case. Yeah.
Max, just on that point of stores, are you able to maybe elaborate a bit on how many SaveMor stores you think can fit in South Africa?
You like our board members. I'm allowed to say that? No, I'm allowed to say that. Okay. Yeah, we've got a number, but I'm not going to tell you. Is that the right answer? Yeah, yeah.
I think this is a point that Max was trying to make, and partly the reason you're here, right, is SaveMor to the investor seems like the panacea for Boxer. For many of you, you're viewing it that way. I think what we want to demonstrate to you is that we have strength under the SPAR brand in the rural and township communities where we're taking on Boxer head-on every day. It's not a new phenomenon for us.
SaveMor, I think, becomes much more of a pocket filler. So where you can't open a store that's going to do ZAR 20 million a month, but you could open a store that could do five or six as a fully fledged SPAR store, it's not going to be viable. But as a SaveMor, when you strip the costs out, it makes sense to fill those pockets much more aligned to SaveMor than it is to Boxer. Okay. And there's going to be opportunities to open the stores. I think if I gave the clearest guidance I can give, we're on 80 stores at the moment. We probably double those in the next two to three years. It's not going to be bad. Having said that, we've got strength in the township and rural communities anyway.
And we actually have a massive positioning of strength there, which you'll see tomorrow. I think both sites that you see in KwaMashu have Shoprite and Boxer in their shopping centers. And you'll see how strongly our stores trade in those relative markets. I'm looking at you because I know you've been to them. So you can probably confirm that. But I don't think that has necessarily sunk in with the investor base in general, which is why we are today, ultimately.
Can I add one more thing? I'm going to say it. You tell me if I'm wrong. Our retailers that trade in these areas are not scared of the opposition, the names that you mentioned, okay, in our rural emerging markets. We do very well and manage response, and that's not an issue. It's really our pressures in the town stores.
And when it comes to SaveMor, I like to underpromise and overdeliver. So there's a number. We need to do more than that. But what is key, the informal trade in this country is massive, and you know that number. If we can formalize some of that lower SEM through the SaveMor format, that is the play. People aren't looking at doing that. We've got to use Save. But if we can unleash that, a lot of five and six millions is a big number.
Yeah, thanks, Isla.
On the liquor side, on your presentation, you had expand private label. I just wanted to maybe perhaps get some clarity or some color just on how private label brands resonate with customers. I assume liquor for most people, if you drink Heineken every day, you'll continue doing so. So maybe just some color there.
I think the beauty with liquor and private label is that, and I think that's where the evolution in private label is, that it's no longer a no-name brand, right? Is that, I mean, like right now we've got what is a private label, but it's called Olive Brook. So from a customer point of view, you don't know that this is actually a private label wine. And the bigger opportunity is even beyond just wine, how do we then start playing in that space from a whiskey point of view where you can have a private label Irish whiskey, but actually it's going to have a brand. So from a customer point of view, there's nothing that says this is actually private label. So I think that's really the big benefit that we have on private label going forward is that they are now actual brands.
It's just they happen to be exclusive to us.
Just the one thing. Heineken and beer is a very bad example. Okay. It's very brand conscious. But outside of that, there's a massive opportunity, and our growth has been huge, and it's quality product as well. I mean, you can pick up Olive Brook at $49.99. We only drink Moët & Chandon, Olive Brook Sauvignon Blanc. Megan as well only drinks the private label. So it's good value and good quality. Okay, and there's a big play there for us.
Hi, I'm Dino from Investec. Thank you for the presentation, guys. That was very useful. Maybe just you're appointing a corporate store MD to manage the corporate estate. But hasn't the intention always been to get franchisees taking those stores? And does this mean it's a structural change in the way you're thinking about those stores?
And then maybe just staying with this topic, is do you track average age of franchisees and how that's trended over time and how many stores per franchisee and how that's trended over time? I mean, could you get some color on that?
So in terms of our strategy, it's still independent retailers, please. We're not changing that strategy. But there will be a small percentage of stores where retailers fear to trade or stores that we are warehousing and making sure that we don't want to give up real estate, and maybe those stores aren't profitable. So we need to have the arm to make sure that in those stores, it's a small minority, but we want them to be profitable. We want to use them to trial out new concepts, and they need to fire.
So we need to know how to run those retail stores as a wholesaler. But our strategy is not corporate retail. But if there's one or two key sites that we've got to go into to grow our brand and our retailers don't want to go in there, we'll have the opportunity to take those boxes and then pass them on to the other stage. It just gives us another bow in our quiver. That's how you say it. Then your second question was around succession. Okay. So we do track. We've got all the detail around store size, how many stores our big groups have and the like. We've got all that stuff. In terms of age splits of our retailers, probably not as good as we should. That's part of the succession planning work we're doing at the moment. Yeah, that's the answer.
But there's a lot of second and third generation youngsters coming through into the business where they might not necessarily have opportunities in corporate South Africa. It's an attractive space to run your own businesses. Our retailers make a very, very good living, generally.
Okay. Is there not an opportunity to provide upfront financing for them to open the store if you can identify that they've got talent?
Yeah, we do do that. Some of the banks have put us under pressure there, but we do do that. We have funding means for our retailers to assist. We have BB-BBEE funding arm for ourselves, which no bank will give prospective retailers. So we do have that in place.
Okay. Okay. Thank you. Can I be greedy and ask one more question on the private label?
He was Investec.
Yes.
You can help us with that funding mechanism.
It's outside of my control. I don't make those decisions.
You ran away quickly, yeah?
Just on the private label, where are you getting this stuff from? And why is it being sent to a separate DC? Why? What benefit does that give you?
I think on the consolidation warehouse, so only 11% of the private label turnover goes through consolidation. It's mainly on second, third, and fourth-tier manufacturing where we have to buy long runs. We've got to warehouse it and then sell it over a period of time. And also the consolidation works around all the import cargo that comes in. But the majority of the product goes directly from manufacturer, directly to the six SPAR distribution centers, and then out to retail stores with a normal course of action.
It's a strategic warehouse, not a warehouse that we move product through for every single private label product that goes through SPAR.
Hi. Good afternoon. This is Salome from Mergence Investment Managers . I have two questions on liquor. The first one is, what is the difference between TOPS and SaveMor Liquor from a front-end? So what the customer is able to purchase on the price points? And also back-end, how do you manage the two brands? And then secondly, is there any regulation or constraints regarding the amount of liquor stores that a certain catchment area can have? Yeah.
So maybe starting back to front, there's a lot of, and I mentioned in terms of the regulations and that environment in terms of being a lot more stringent.
And so there's a lot more conversations, for example, in terms of how many stores can you open in a particular catchment. I think there's new legislation that came out, for example, within the Eastern Cape, where they're now saying if you're going to be opening in the store, actually the person who holds the license needs to be actually in the store. So there is a lot more of that kind of regulation that's kind of coming through. But I think for us, in a way, we kind of welcome it because right now we just believe that there's just quite a proliferation of liquor stores. We sit in a fortunate position where we do have the lion's share of that.
Where there are some more regulations in terms of what you can do from an opening of new stores, I think that does kind of help because right now it's just gone a bit haywire. Kind of just on your first question in terms of differences between store or TOPS and SaveMor, from a back-end, actually not much. I think Max was kind of trying to explain in terms of how we're looking at it to say, if you are in deep rural, for example, and you're looking for a liquor store that potentially is a lot more smaller in size, potentially carries a more limited range, that's where you would then kind of consider a SaveMor.
I think the idea is TOPS then starts to really play at that four to 10 space from an SEM point of view, where you're then saying where we are in areas and locations where it's very much SEM one to three, potentially you can kind of use the SaveMor liquor brand in that regard.
Add some color to that. Thanks, Thami. We've got 19 SaveMor liquor stores in the country out of a portfolio of over 900. It's not a big play for us. It's a shift of, right, we're going after SaveMor. What is our liquor solution going to look like? And it will be simpler, less costly, but still inviting to our customer and consumer in those areas. That's what we do well, and some of the legislation you may or may not know is also around where are schools positioned and where are churches positioned.
If we went dark advertising, and I spent some time in the Irish business a couple of years ago, an extended period of time there, and the liquor legislation there almost went completely dark. If it happened in this country, it's a positive for TOPS because we're well established. So a couple of plays.
Well, hopefully you can hear me. So on the gourmet, the example that you showed us looks like a bigger format store, more like a department store. Can you just make us understand where you think the retail behavior is going? My understanding is that the consumer is looking for efficiency in and out and targeted SKUs. So yeah, maybe if you can just add colors to what kind of opportunity are you seeing in that department store format.
Sure. So the gourmet store is exactly what you're talking about.
I said food for now, food for later, and a grocery top-up. So it's an immediacy that our customers are looking for, niche offering. Really, the size of store is there's no set ruling around that. It's going to be a smaller to medium-sized store, but we can go bigger in key areas if we feel the catchment is required. So like Bedfordview. Bedfordview is a SPAR store that is going to convert to a gourmet and carries a wide range in that space, but also ticks those three boxes of what we require. Sorry, Angelo. Okay. So SUPERSPAR Salta, you're going to go see tomorrow. No, today. Tomorrow. SUPERSPAR Salta, an Umdloti, Paul Jason, niche retailer, that could be a gourmet as well. It's a current SUPERSPAR. We have tried to differentiate when you're there.
Gelato ice creams, like some of our other stores, in-store produced, that equipment's all from Italy. That picture gourmet as well. So it's not a department store as such. It's more niche offering. But on the whole, it's going to be a smaller to medium-sized store, satisfying those three customer trips, food for now, food for later, and top-up grocery. Does that answer your question? I'm sorry we didn't have any better renders, but Zinhle got a lot of my slides to make sure I didn't talk for hours. Come see us on 1 August, and you can come see the real deal.
Hi. A question from All Weather Capital . Max, it's a question for you.
Just on the expansion on property site identification, I understand if a franchisee comes to you guys and existing franchisee, he or she identified a good site, and then you guys go from there. But I just want to understand, given the competitive landscape and your competitors expanding store space quite aggressively, when a new development is announced or in process, I mean, how do you guys go about that if a franchisee doesn't approach you for that specific development?
Yeah, it's a good question. We've lost out on a couple of key sites. We haven't been top of mind with some of those developers outside of those that currently have our formats in their centers and like what we're about with that independent retailer driving the business, hence the need to centralize and professionalize a bit more.
We've got to step up in our game there, and we're in that process to feed the pipeline, getting out to those funds. Megan's played quite a big role in trying to refocus us in that space, and we've got to improve. But the first step's been done in structuring our real estate and having one port of call as opposed to a fragmented approach.
How does that differ from what you've done before?
In the past, we had six divisions, fully federated, fully decentralized, each MD running growth in their own divisions. So an MD in South Rand would say, "I don't really want to be in Soweto. I don't think the return is good. Therefore, I'm not going to consider it." There wasn't a national drive to say, "No, no, we're underrepresented in Soweto. These are the key sites.
We want coverage in those areas, and you will go into that area." Okay. So it was left to the division's P&L to grow that business. So that was the decentralized federated model, not going to work for us going forward. And hence, we made that move this past fiscal.
Okay. And is there any specific example that you can share with us of how that's improved the process? Have you guys identified sites that are still open now, or how does?
We have. There's one really great example, but we're currently going to steal it from our opposition. So let's get that across the line. Let's get it signed, and then the chap can fly back to Cape Town and see what happens.
Perfect. Thanks.
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Good afternoon, everyone. Thank you very much for the opportunity to come and present on Build it to you today. I just thought it well to put up a video way up front so you can see what Build it's all about. I don't think all of us have been into a Build it store. I'm Hawie du Preez . I'm the MD of Build it, and I will just take you through some of the basics of our brand within the SPAR division or division within SPAR.
So basically, we're a division of SPAR trading as Build it. We're building materials and hardware merchant. Our business model is based on exactly the same model as SPAR. It's a voluntary trading model, and we have retail members that belong to the brand making two applications, one to SPAR for membership and credit, of course, and then the other one to our national guild for membership. Our retail sales, you can split the retail sales in a specific store between yard and store. And I'll explain that shortly. 65% yard sales and 35% store sales. And what we see as yard sales is everything that you will find typically outside in a yard. So it's your commodity lines, cement, timber, bricks, and so forth. And in-store sales, we see everything that you can take off a shelf. So it's decorative, paint, general hardware, ironmongery, and so forth.
There's that 65%-35% split for us in a typical Build it store. If we look at our customer base, about 60% of our customers are contractors, both formal and informal contractors, and we have about 40% of our customers are walk-ins. It obviously depends on where the store is situated, but on a general average, we have a 60%-40% split between walk-in and contractors. From a retail purchase perspective, that's more where the wholesale component comes in. We have a dropshipping system that our retailers operate on. Every product that you see within a Build it store, you can look at it at the whole product range, about 70% of the products comes through the dropshipping system. We have an incentive program to incentivize our retailers to buy more through the system, and that's where we get bulk of our buying power from.
Then 30% of all products within a Build it store typically is direct purchases. It depends on where the store is situated. Once again, it might be local suppliers. It might be direct suppliers that's not listed through the system, but that's basically the split between wholesale sales, dropshipping, and direct. From a retail member support perspective, we have six regional offices. They all reside within the six regional SPAR DCs. We have a central office, and then we have an import warehouse that houses all our house brand product. So this year, we'll be turning 40. Back in 1985, we started as a concept within a SPAR store in KZN, and through the years, our brand has developed, as you can see on screen. And as the brand developed, we unlocked more regions and obviously countries.
Currently, we're trading in five countries, South Africa, of course, and then we have Eswatini, Lesotho, Namibia, and Mozambique that we're trading in. If we look at the competitive landscape, like with any other industry, we have a fierce competitive landscape. If we look at our primary competition, so it's where we are heading up face-to-face with similar competitors, we have the likes of Cashbuild, Essential Hardware, and then PowerBuild, which we deem as our primary competitors. If we look at our secondary competition, that's the likes of Builders Warehouse, BUCO, and Mica, brands that everyone sort of knows, but they trade more in the middle to upper LSM markets and also all national brands. Then we have the likes of Leroy Merlin. That's a French giant that came in, international competitor, but regionalized, only trading out of Johannesburg at this point in time, Gauteng. We have Chamberlains.
That's also a prominent brand out in Pretoria and Johannesburg area. And then we have more regionalized opposition, the likes of Buildrite, Brights Hardware, Brights Hardware out in Western Cape. And then we have Boxer Build, limited amount of stores, but affiliated to the Pick n Pay brand. Then we have specialist retailers that compete with specific categories within our stores. Too many to mention on one slide, but just to give you an example, Jack's Paint, very good example of that competing hard on the paint category. CTM, we all know CTM, floor and wall finishes and bathroom finishes, Voltex, electrical supplies, and then Plumblink and Bathroom Bizarre. The name speaks for themselves. And then more prominent in our rural and country areas is independent traders. Also, too many to mention. That's just a few examples that I've put onto the screen for you.
I'm not going to even mention names. Those are all independent traders, not affiliated to a specific group. And then the last category there, that's part of our competition. It's more wholesale competitors. Two biggest groups there are Elite Star Trading Africa or EST Africa, and then the Massmart affiliated group, Shield. So that's just our opposition from a competitive landscape environment. The only opposition that we have that's a listed entity that we can compare our results to is the competitor that you can see on the screen. And their financial year runs from July to June in a specific calendar year, sorry, of a specific period of time. Last year, they've posted their 52 and 53 weeks results. So just displaying their 52-week comparable results to ourselves. And I just wanted to give you some perspective of where Build it peaks in the market.
So our competitor, 322 stores for their last financial year, ZAR 11 billion in retail turnover, 3% total growth, and like-for-like growth or organic growth at 2% for the previous financial year. Where we picked over that same period, 399 stores, ZAR 18.1 billion worth of retail revenue, 1.38% total growth, and like-for-like, slightly ahead of the opposition at 2.16%. The same competitor just released their retail or their half-year results. They reported 318 stores, ZAR 6.1 billion worth of retail revenue over the six months, 5% total growth, and organic at 4%. We came in at 401 stores, ZAR 9.97 billion worth of retail revenue. Total growth 4.57, slightly behind our position, but ahead in terms of our organic growth at 4.7 for the same period, same six months. In terms of our market segments, once again, if you look at the left-hand graph, we measure ourselves against the formal competitor.
We are well represented in urban and country. So the blue graph is our opposition, and the red graph represents Build it. So we are well represented in urban and country areas. We are on equal footing in township areas, but we are a little bit underrepresented in the rural areas. On the right-hand side, you'll see that there's a performance per segment for our last financial year. And you can see that in a tough economic environment of our last financial year, urban, country, and rural stores really did exceptionally well given the economic conditions, and township lagged behind for the last financial year. Then from a format perspective, we have two main formats, Build it and Build it plus. Build it stores: we have 364 stores in the markets, and we have 36 Build it Plus stores.
now, Build it Plus stores is a larger footprint store, also wider and a deeper product range, and a whole bouquet of our Build it concepts to excite and delight our customers. You can see on the right-hand side; these are all our concepts that's value-adding to customers from Bathroom Bizarre, The Lighting Spot , and The Paint Bar . We have every solution that a customer can think about. Over to our imports warehouse. Our imports warehouse forms out, makes out about 7% of our wholesale sales, an integral part to our success. What our imports warehouse houses is just our house brand. If you look on the right-hand side, that's the typical categories that you will find in our imports warehouse. No bulk goods. It's more electrical, plumbing, tools, and so forth.
We do have some large suppliers that do package some of our house brand lines, for instance, paint. It's too bulky of an item to move through our warehouse. We've just concluded a transaction with the likes of Plascon, where we've awarded our house brand paints to them last year, about September, October, where we moved away from another supplier. We do have some of our house brand that's packaged and dealt with outside the imports warehouse. If we look at our retail sales mix, we categorize our products in store into four categories: Cat 1 to Cat 4, and that's a typical model of a Build it merchant. Just to elaborate a little bit on the categories, category one and category two talks about infrastructure and structural development. In category one, we have wet trade, cement, metals, and fencing, and roofing.
So everything to do with the structure. The structure continues in category two: structural timber, flat sheets, boards, joinery, and so forth. And you can see that there is a big component of our business that's been dealt with at store level. If you look at category three and four, although category three is slightly higher in terms of ratio mix, that ratio only started ticking up over the past two to three quarters. But for the Build it merchant structure, we decided to keep Cat 3 in that second top tier of the triangle. So in category three, we have decorative. That's more your paints and so forth, garden, outdoor wall, floor, and rainwater goods. And then we have in category four, it's more your electrical, plumbware, hardware, and tools. So that is a typical Build it merchant.
If you compare that to a typical DIY store, so your small neighborhood DIY store, that whole model is the inverse of a Build it merchant. Large trading or large category contribution in Cat 4 and Cat 3, and lesser so in category one and two. That's mainly just because of the restrictions of where they find themselves out in the leased areas within major shopping malls. So in terms of our growth, I just want to touch on two growth aspects for us going forward into the future. It's two of our strategic points where we see ourselves as a Build it merchant growing in future. On the right-hand side, we're going to remain a Build it merchant, but we are going to maintain and grow our category one and two sales. That's foundational to Build it.
But we definitely need to improve and expand on our category three and four product mixes. That's where we found that there's stability in economic fluctuations, and that's basically the model that we're going to follow going forward. Quickly on the Build it strategy, I'm not going to share all the strategic elements of our strategy here today. I just wanted to highlight four of the points. We've refreshed our whole strategy last year, and we're well on our way with our action plans. I just wanted to highlight through the forum today four points. The first point is our winning aspiration. We've taken a model of cascaded choices, and the first choice that we've taken there was our winning aspiration, identifying that as being the first choice brand for Southern Africans who want to build, maintain, and improve things of enduring value.
Now, the word things in there is specifically chosen not to be category or hardware industry related. We wanted to talk about all things. So it also talks about, for example, to our entrepreneurs, our retailers that joins our brand. That is something of enduring value that we want to help them build. It talks from customer to supplier to the brand itself to our retail members. It's all-encompassing. Our strategic issue that we've identified is we need to create new rules of the game to help us with our strategic ambition. But the key point in that whole sentence there is that we've realized that there's a shift in consumer control and influence in the final purchase decision, more so than in the past. What we found in the past is that contractors influence the purchase decision more than the end consumer.
And we've seen a definite shift in the market and in the industry regarding that, all due to social media and how-to videos. So everyone starts becoming that expert. So we need to definitely influence the end consumer more. And that's where our third point comes in is where do we need to play? We need to play from the professional to the end customer. So we need to make sure that we talk to the end customer so that the professional and the end customer are aligned on where they need to shop in future. And then how we will win is to be the biggest and easiest retailer to deal with. It's not necessarily the biggest footprint or the biggest stores, but it all talks about frictionless retailing.
So really refreshing our model for our retailers and for our customers and for our suppliers to create that frictionless retail environment. So in a nutshell, that is where we're moving towards with our strategy. If we just quickly talk about geographies, as a group, we have 327 stores in South Africa and 73 stores in neighboring countries. And the neighboring countries, if we just have a quick look in the West region, we have 23 stores in Namibia, two stores in Lesotho, eight stores in Eswatini, and 40 in Mozambique at this point in time. So with regards to our store number growth, you can see way in the beginning, I think it was in 2000, no, I think it's definitely in 2000, we formalized the brand. Although we started off in 1985, we started formalizing the brand around about 2000.
There was some significant growth in the earlier years. We got saturated to a certain extent, and you can see that there's been a stagnation over the past three to four years due to various reasons. COVID played a big part, disruptions and the looting that took place in KZN and so forth. That played a huge part with regards to stagnation in store numbers, but with our strategy, we have some definite key actions that we're going to employ to get to a net effect of + 10 stores by the end of this financial year, and then lastly, with regards to technological enhancements, data in any industry is quite valuable and a big focus. It's certainly a focus of ours, and you can just imagine in a voluntary trading environment, it's even more so challenging, but we've made huge inroads with regards to harvesting data from retail.
We are not done with our enhancements there. We're on a journey, but I'm happy to say that we've made some huge inroads there, and we'll use that to our advantage to further our retailers' top line and bottom line, then pictures on the bottom, two cell phones there. It's just to tell everyone that we're going to launch a quite exciting platform. Can't disclose what the name of that platform is yet, but to our consumers, that will be in a staggered approach after our convention in May, so May going into June, we're going to launch a very exciting platform to our customers, and that's going to be closely linked into our customer loyalty program called Build it Cash Rewards that also underwent a major revamp recently, so we are very excited to launch that into the market as we move into May, June.
And that in a nutshell, I hope Zinhle that I'm good for time. That's a quick Build it update. Thank you for listening to this quick and short presentation. Zinhle, if there's time, and if it's appropriate now, we can take questions.
Hi, thanks. The sales growth of the different categories from one to four, maybe over some time periods, like over the last five years, how's that been progressing?
There's a definite shift in categories three and four. So it's more your DIY and BIY categories. And that we've linked closely to where the economy finds itself. So in a tough or downturn economy, there's less development. So you see less cement, you see less timber, you see less structural development. Infrastructure investment from the government also plays a huge part in that. So it just depends on where the economy finds itself.
That has a huge influence on the category growth, but we definitely see an uptick, especially with our new strategy that we are actively driving improvement in category three and four.
That's the trend currently that three and four is growing?
Yeah, we are driving that.
Then the last one on the Plascon brand, when you discuss it with them, how do you ensure what level of quality is in the product so that there is enough down trading from Plascon? How have you agreed that and the price discounts? Maybe more about that deal.
It was quite an easy decision for us. We went through a complete tender process and specification process. So all the major players were involved. They have quite a good facility, Plascon, and they have a whole engineering department behind them.
So by switching over our house brand, there was a definite uptick even in quality. And they could bring the price point down because this is a complete new market segment for them in terms of house brand. So they have their own brand performing at a certain level. And now all of a sudden, they have another segment which they haven't captured before. So in terms of quality, we are confident that we are at Plascon level quality. They didn't dip down on their quality. And to be associated, our house brand being associated with the Plascon brand was an immediate step up for us. So it's a mutually beneficial partnership for us there. Thank you.
Hi, there. Yeah, thank you very much. Just quickly from my side, can you maybe just share how big is the independent market, independent retailers in South Africa?
And how has your growth compared to theirs over the last sort of five, 10 years? Who's growing faster? And can you take share going forward?
That is a completely gray area. So there's no handle on the independent trade. There's a whole host of independent trade. So there's more formalized brands. They don't even share their numbers with us. They're not JSE listed. And that's why we can only compare to one competitor. If you look at the broader market, we deem ourselves to have about 9% share. So that suggests that the formal building and hardware industry is about ZAR 220 billion per annum. But there's no way to measure the independence. Even with the supply chains, they're all keeping the cards close to the chest. So we can only estimate.
Maybe cement tonnage.
Yeah, that's a good point.
So if you look at, we also estimate the market by looking at our cement tonnage and the tonnage that goes into a build of a typical house. So your cement spend should be about 15% of any project. And if you do a little bit of backward calculation, you can determine a market. And we do have inflows into specific markets coming from some of the cement suppliers. So we can determine more or less what the market is like. But the growth of independents and how we measure that, that's unknown to us.
Maybe can you talk through what your competitive edge is? So you kind of showed the slide with all the competitors. Just kind of why do you win versus those? And why does that allow you to start rolling out 10 stores a year now when it's been flat for the last couple of years?
So just maybe also a bit of a reverse side around on that answer. So we've had new store growth, but we did have some stores falling off. So our net effect was basically zero. So it's not that we didn't launch any new stores. Competitive edge is all in the independent retailing. So it's the same model as SPAR. We offer retailers a solution, a brand that they can trade under. And they have created facilities. They have a whole support team. If you compare ourselves to the likes of EST and Shield, that's purely a buying group. They don't build brand. With us, they build brand and they have a whole host of support and service available to them. If we talk about our redevelopment program or our refresh program, there's funding that's available to retailers that's interest-free, for instance.
There's loyalty rewards programs where we reward retailers for buying more through the system. The biggest thing is our brand and the individuality that they can maintain under our brand umbrella. Over here.
There's been a massive increase in number of retailers under buying groups over the last couple of years. Cashbuild have spoken about it often. Why was Build it not, I suppose, the brand that they incorporated under? Why did they go buying group way versus you? And then our second question is just the difference between what a country store is and what a rural store is. Yes.
There's various reasons for that. We have 400 stores, 327 in South Africa. So we do have a specific store specification. So not all of them, we have had applications, but we can't accommodate everyone. So there's some of the formal opposition that also goes to those independent buying groups.
So for that, we don't really have an answer why so many have joined them and not joined us. I can just assume that it's more brand spec. We are not a typical franchise. So there's no franchise fees. It's all benefits to the retailers. We also advertise in the likes of the DIY Trade magazine. So we get quite a lot of requests coming in from the market. But we can't accommodate stores that's not meeting our specs and the markets where we want to trade. In terms of your question, it was rural and?
Difference between country and rural?
Country and rural. So the easiest way to explain it, so rural is more agricultural, farming communities. And country is where typically we will find a co-op. That's the main difference between the two for us in our industry.
Is that working? Yeah. Thank you. Afternoon, everybody.
I'm really looking forward to just giving you a better understanding of pharmacy at SPAR. I'm sure there's at least one person in the room who's said to themselves today, "But I didn't know that SPAR had pharmacies." I get it all the time. And we are definitely very much, I would say, at the start of our journey, as Hawie put it there, 2002, although SPAR has had pharmacies for quite some time, there's been a lot of effort put behind the pharmacies over the last couple of years. What I'd like to do is just give you a flavor of where we're at in our pharmacy journey, give you an understanding of what we're doing, and then actually do it the other way around, not starting with the competitors, but actually finish with our position in the market.
Hopefully, that gives you a good idea of where we're at. This is our one and only DC, which is in Carletonville, Gauteng, which is about an hour out of Jo'burg. SPAR purchased this business in 2017. It's from here that we distribute to the rest of the country. I'll talk about that. We basically have got three key businesses: the wholesaler, Scriptpharm Specialized Pharmacy, and the academy. I'll just give you a little bit of more information around that. We've got 120 SPAR pharmacies. I think I've spoken to this slide. If we look at the business of SPAR Health, we're a typical, and we've got the wholesaler, the specialized pharmacy, and the academy. From a wholesaler point of view, we're a typical pharmaceutical wholesaler. We sell to pharmacies, hospitals, and doctors. In there, we've got your SPAR pharmacies.
We also sell to non-medical customers. In the main there, it's actually SPAR supermarkets. Very early stages with them, but that's definitely a direction that we're moving in. In terms of Scriptpharm Specialized Pharmacy, Scriptpharm is focused on your high-value medicines for high-risk patients, high cost, and lots of hoops to jump through in terms of the medical schemes. It's areas like renal dialysis, ophthalmology, if you look at what they call back of the eye, macular degeneration, rheumatoid arthritis, which now requires very specialized biologics, transplant, rare diseases. The point I'd like to make here is that if you take renal dialysis, for instance, Scriptpharm distributes to 50% of all the renal dialysis scripts around the country. If you take ophthalmology and the back of the eye, macular degeneration, over 75% of those scripts are coming out of that facility that you saw.
So they're doing a large number of patients and scripts every month. The key stakeholders in this business are the medical schemes, the suppliers, as well as the specialist doctors. And it's about what has to be managed there. Most of this is cold chain. And it's supported by patient support programs where there's an element of education, funder, and specialist compliance. And we actually have nursing teams on the ground around the country that are dealing with patients, doctors, and clinics. In terms of the academy, we train pharmacist assistants, which is the number one support personnel that you have in your pharmacies. Undergone a big change over the last year. From July last year, they've elevated the quality of the training. And in that regard, we actually had to build training laboratories around the country.
We also do dispensing licenses for doctors and nurses, as well as CPD, so continuing professional development for pharmacists. The final point I would like to make on this slide is that we've gone under the name the business that SPAR bought, which has been going since 1993, was SPAR-based, became SPAR-based Pharmacy at SPAR. Going forward, it'll be SPAR Health. If you look at our performance, year to date, we're ahead of both budget and prior year. Very much strong support from both Pharmacy at SPAR and Scriptpharm. Substantial opportunity with the non-SPAR wholesaler sales, pharmacy, hospital, and doctors. The perspective I'll give there is if you look at the Dis-Chem and the Clicks results, they both do over ZAR 5 billion a year outside of their Dis-Chem and their Clicks pharmacies. In fact, Clicks does a further ZAR 5 billion with what we call bulk distribution.
Those big suppliers, these are all opportunities for ourselves. Academy is also performing well against budget. In terms of pharmacy at SPAR, we focus on some really key metrics. Some of them just mentioned here is the retail turnover and negative trading stores, wholesaler purchases per pharmacy, own brand sales, medical scheme compliance, and script count, transaction count, and basket spend. All of these are ahead of where we want to be. Our loyalty is standing at about 60%. I'll give some perspective when one looks at the competitors a little later on. That 60% will shift through some of the strategic initiatives. Our strategic initiatives are actually putting wholesalers down in the regions. Western Cape and KZN is where we're going to start.
We're very much on track with that, as well as pharmacy recruitment, what we call Project 125, so doubling the size of our network. We were very happy with 250 until Angelo said publicly that it needs to be 300, but we'll get there. The training laboratory. If you look at the training, the pharmacist assistant training course, where we train more than 50% of all pharmacist assistants in this country, we do it for all our competitors as well. Previously, it was a distance learning training. Now, with the elevation of the standard that we have to train at, dictated by Pharmacy Council and Department of Health, we're the only accredited training facility in the country. We had to build training facilities. We did one in Carletonville. We've completed in Pretoria, completed in Cape Town, and we're busy with the one in Durban.
And we're probably going to have to build more. And we're excited about it. If you look at what's happening in this country and in terms of tertiary education, and you look at the numbers of folk that are applying for university and the actual numbers that can be accepted, this is a course which takes 18 to 24 months, and people are in the market pretty quickly earning a decent salary. And then we're also very early stages of important strategic initiative around consumer health. If you just think about self-care, and this will stretch across not just pharmacies, but also all SPAR formats. There's a great opportunity there. And then SPAR Connect. Our opportunity in pharmacy is just to ensure that we're leveraging the 60 years of expertise, capacity, and capability of SPAR. Our model is the SPAR model.
It centers around; it's driven by the strength of the entrepreneurial pharmacists, the independent pharmacies, and their staff at the center of community, and what I always say is that when you look at the pharmacists and they come out of university, they're those that are going to want to work for the big corporates and those that want to own their own businesses, and ours is perfect for the SPAR model. We are focused on independent pharmacy and creating the home for independent pharmacy, and I'll give you some numbers to show you how that plays out across the South African market, so we've got 121 pharmacies. It's not a big number. That's why we're working hard to double that number, and this is how they play out across our SPAR regions.
If you look at our network, 45% is historically owned by historically disadvantaged owners and 37% by women. This is a slide that I bring the team back to very often because we often get stuck on, yes, but your Vita-thion is more expensive than it is against the big corporate or the other independent. If we remind ourselves around the pharmacy business, the first thing is a pharmacy is a pharmacy because it has a dispensary. And the lifeblood of that dispensary are prescriptions. That's a pharmacy. And in a pharmacy, you've got a healthcare practitioner, primarily a healthcare practitioner. The big advantage now is that we're leveraging the retail expertise of SPAR. And there are a lot of pharmacists who own their pharmacies in the network who are excellent retailers. But these are the moving parts.
In the pharmacy, you've got the dispensary, the front shop, and the clinic. If one forgets about the dispensary and you just focus on the front shop and the price of Vita-thion, then one is making a big mistake. That's a big focus for us. On the clinic, all the medical schemes are pushing their members now to the clinic. They're saying it is the future of healthcare. We like that. It's where they're looking to get a service at a reduced cost rather than going to an emergency room. Oh, sorry. We have the critical component of marketing in-store, the precinct. Not all of our pharmacies are alongside a SPAR supermarket. That's first prize for us. But we have them next to Pick n Pay, Checkers, and some of them are actually standalone as well.
And then really important is that all of this works because of the partnership and the relationship with doctors, with medical aids, and suppliers. Those are key components. Again, one cannot ignore any one of those components. And when we've got this all really working well, then one looks at national marketing. So on the dispensary side, we focused on scripts. We focused on connecting with the doctors in the community. We focused on ensuring that our scripts are growing alongside the sales. Formulary management, critical. If you look at what the medical schemes are doing and how they are managing costs down. And what I always say is if this was the board of Discovery or Medscheme or GEMS, we would be looking to drive costs down because it's become extremely expensive, very high-tech, expensive investigations, medicines, laboratory tests.
So this is just something that we have to face up to. And so we work very hard with our pharmacies and the medical schemes to ensure that our pharmacies are compliant. It's an ongoing exercise. They give us reports every month, and we can hone in on pharmacies and, in fact, the dispensers within the pharmacies that are actually not at the right level of compliance. Front shop, again, range, price, private label. We've got a nice range of private label, very small, but it's growing nicely. Clinic is where primary health and wellness. So you've got your medical schemes now saying not only those folk with high blood pressure, cholesterol, etc., it's what can we do from a preventive point of view.
And then what's really nice is on the marketing and merchandising, we've just included and rolled out the SPAR Awards into our pharmacy network, which actually the pharmacies are really excited about. And we are constantly working to align with the greater SPAR Group and the regions. And about two years ago, our focus was on loyalty. And for the last 18 months, our focus has been on growing each and every pharmacy revenue, profitability, and their competitiveness, making sure that their market share is also growing around them. We haven't got it right with every single pharmacy, but that's the focus. We also have put together our pharmacy committee. So we're now working within the framework of the National Guild. We have a new business team that's working to plug the gaps. And then we're very focused on including our SPAR retailers.
We still haven't got that percentage of our network at the percentage we want. But the more SPAR retailers we get in, the happier we are. This is what our loyalty looks like. So we're currently at 58%. The last three months, we've been at 60%. And we'll hopefully finish, not hopefully, we'll finish the year at 60%. But we need those regional wholesalers to get to 80%. And it's all around service. It's around when somebody needs that medication, and we service our pharmacies next day. But when they need something that afternoon and they order it in the morning, we do better to be closer. And then what we've created is a dashboard. Every single pharmacy has their own dashboard. And it's really interesting to see how each one of them focuses on different elements when our team goes and visits them once a month.
It's customized per store, and it's all the important components: turnover, GP, trading density, growth and loyalty, sales per employee, per hour, per day, dispensing fees, etc., etc. We are constantly developing this dashboard. We get data from every single one of our pharmacies. We're not getting the financials. We're getting the trading data. They're sharing that with us, and we're able to go through it with them. I think, and I believe that we're starting to see the positive effects of that. In terms of that pharmacy business, which I've explained to you, and the market that we operate in, this is the market we operate in. If you look at the private market, and to December last year, scheduled medicines to the value of ZAR 58 billion, and 68% of that flows through the pharmacy. In our minds, we're in the right place.
The pharmacy, that's where it's flowing through and to December, 4% growth. Volume was down 1%, which is interesting, but not surprising. It's to do with there is still some COVID results in there. Dispensary OTC split, remember, so sorry, OTC is you don't need a prescription, but you do need to get it from a pharmacy. It's 64.36%. And dispensary grew 5% and OTC 2.5%. generics, what's really interesting is that generics, 43% market share about 18 months ago, they took over from the originators in terms of market share. And it's not that 43%, there's also what they call uncategorized. So it's still higher. I think the originators was about 38%. And the growth of the generics, 5.5%, and OTC generics, 7.5%.
One of our challenges in the pharmacy world is that a lot of times you've got both the pharmacists as well as customers and patients saying, "But no, no, I want the originator." That's fine. But nowadays, it's quite the penalties against them from the medical schemes are quite severe. So we have to change that. In the U.S., generic market share is over 90%. And that is the direction that South Africa will move. We'll get to 90%. And then if you look at the dispensary, the top 15 suppliers account for 65% of the market. There's about 146 suppliers in that channel. And then OTC top 15 account for 69% of the market. And there's a lot of suppliers there. There's 636. Just across that 65%-69%, there's 22 suppliers.
We deal with, in fact, all of those and a lot of those other suppliers as well, if not all of them. If we are looking to understand the competition, if you look at community pharmacies, you've got just under 2,000 independents. Then corporate means it can be independent, but they carry a national brand. If you have a look here, you'll see that the corporates are about 52%. But the true independents here are your Alpha, it's SPAR, and it's Link Pharm. TLC is a brand that is owned by Dis-Chem. And they are independent. They own their pharmacy 100%. But there's a lot that they have to do, which is dictated to them by Dis-Chem. That's how it splits out. Then if you look at wholesaler facilities, UPD is the wholesaler for Clicks. Alpha is their own wholesaler.
CJ is for both Dis-Chem and TLC. Transpharm is for MediRite. Pharmed is for Arrie Nel. We have East Cape and City Medical is for Link Pharm. That's how it plays out in terms of facilities. You can see why we need to put a regional facility down. We are absolutely focused and committed to independent pharmacy. Absolutely focused there. If you look at independent pharmacy, they hold 60% of the footprint, but only 40% of the Rands. What's quite interesting is that from 2021, 470+ pharmacies have been added to the market and about ZAR 7 billion of scheduled medicine sales. That plays out 13.6%. The point I want to make here is that there are more and more pharmacies coming into the market all the time.
My final slide is just to give you a sense of how we, and this is something we look at all the time. Our benchmark is Clicks and Dis-Chem. We understand and know what the other independents are doing, but it's Clicks and Dis-Chem that we say to ourselves, "We look at two very successful pharmacy chains, and what are we doing along those lines?" So 121 pharmacies, Dis-Chem sitting at about 280, Clicks 720. Clinic coverage, we're at 74%. Clicks at 30%. Dis-Chem's got 100%. TLC, the independent brands, about 89%. Let's call it 90. Our dispensary growth, which is a huge focus for us, is 9%. Theirs is 5%-8%. Our split is 68% to a front shop. This now is the split of dispensary to front shop. Theirs is 27% and 37%.
What's interesting is if you look now at how both Clicks and Dis-Chem are talking about their front shop. Dis-Chem, for instance, now splits it into healthcare and nutrition. And then you've got baby, and you've got personal care. And that's what happens in the front shop. And then Clicks has obviously got general merch. And we have to try and work out what we're doing and how we're doing it there. Our market share is a massive 3%. And together, they're at 48%. They own the pharmacy market. Our front shop growth 6%. We're not happy with that. We're working on that. And theirs is 6%-10%. Clicks is 10%. Our own brand growth is really growing, but for small base is 23%. Didn't get a number for Dis-Chem, but Clicks is 13%. And then our wholesaler compliance is 58%. And Dis-Chem is sitting at 90%.
Clicks is sitting at 98%. Again, if I can just emphasize here that they both do over ZAR 5 billion worth of business outside of their pharmacy. So they're selling to pharmacies, hospitals, and doctors. I'm very happy to answer any questions that.
Thank you very much, Jeremy. That was interesting. Much appreciated. My name's Dino. I'm from Investec. Just in terms of the vibe I got from you is that you think there's an opportunity in the independent market. The kind of direction of travel has been corporatization, right? And it's a global phenomenon, and it happens in every developed market. Why should it be different in South Africa? And then the next one is for this business to, I guess, compete, you need those DCs, right, across the country. And when does that decision get made? What does the invested capital look like? And what time frame?
Yeah, just some color there, please.
Sure. So the first thing is going to have a look at the U.K.. So it's something that is a conventional wisdom is that independent pharmacy is going to disappear. They said the same in the U.K.. It went down to 25%. It currently sits at about 40%. So independent pharmacy will not disappear. And the reason it won't disappear, it's the mindset of that healthcare practitioner. They either want to own their own pharmacy and/or they're happy to work for someone else. But what's really, and this I can give you direct, if you look at the medical schemes and the suppliers, they are all engaged with us. They want to engage with us. They actually want there to be this dynamic between corporate and independent. So independent has gone down. If you look at in 2008, I think independent was 65% of the market. And yes, now it's 40%.
From a RAN value point of view, 60%. So there will be some further consolidation, and we want to make sure that we're part of that. But independent won't go away. That's my view. Okay? And look at the U.K. It's very interesting. In terms of absolutely, we need to put those DCs down. We're down the line in terms of the Western Cape. I wouldn't like to get myself in trouble here, but we'll have that up and running by the end of the year. And KZN will be over the next 18 months. And absolute support from the powers that be, it's happening. It's happening.
Understood. Thank you.
Sure.
Jeremy, three questions, please. So I think your business is growing low teens. Can you give us a sense, one, of what you think the run rate is on a three to five-year view and how it is you actually get there? Because obviously, DCs will be one. Loyalty will be another. I think I'll ask that, and then I'll ask the next question.
Sure. I think the first thing is to get to that 250-300 number. I think then it changes the dynamic completely, both in terms of how we are interacting within the competitive environment, as well as if you look at what we're then able to do to bolster that business further. Right now, it's tight, okay? But I think if you look at that Project 125, we've got a 24-36-month plan around that. Again, if you go and have a look at our competitors, this is how it goes. If you read their annual report, we will bring in 40-50 pharmacies in the following year. In the next year, we didn't bring in 40-50. We brought in 25. It's a tough business, but we've got a plan around that.
Related to that, can you give us a sense of where you get the bodies from? So you're going to obviously need people for the rollout. I mean, where do these people come from? The pharmacist assistants, do they match your pipeline? And then obviously, you're going to need skills in the front shop as well.
So remember, ours is independent. These are people that own their pharmacy. So we are not staffing those pharmacies. We have to staff the business development to go and find those pharmacies to do the conversion. So if you look at the way we're looking at it, you've got conversions, existing independents, and/or a competitive independent brand. And then you've also got brand new. And those tend to be where a SPAR retailer says, "Listen, I've got a supermarket. I want a pharmacy next to it." And then that's generally a greenfield.
Just loyalty from that 58 to 80 path.
Sure, so if you look at our network currently, and we've got year to date, so to February, five months, 58%. Last three months, 60%, but within that we look, so out of Carletonville, we're running twice-a-day delivery to Gauteng, to North West, to parts of Mpumalanga, to parts of the Free State, and those guys are sitting, some of them at 80%, 90%. As soon as you get your service model right, and also with the voluntary trading, there's a certain level that we will expect for them to carry the brand, and then it's also what we do to get them up to that 80, so what's interesting, why it's a good question, is that, well, why is it not 98% or 90%? Which is a question I often get asked internally.
I think if you look at from a healthcare point of view, when that medicine is required, it's required quickly. And if for whatever reason we don't have it, they've got to get it elsewhere. So even if you look at our pharmacy, which hangs off the back of our building, we've got one corporate pharmacy in our own network, which we as SPAR own. We sit at 90% loyalty. And I mean, the wholesale is right there. It's just sometimes there's stuff that you have to get it elsewhere.
Yes. Yeah. Salome from Mergence. I wanted to understand your relationship with the likes of Discovery, if you have those relationships. And also, is there anything that you're providing that is different to what Clicks and Dis-Chem are providing? Either it's a price point or anything, really. Thank you.
Sure. So from a scheduled medicine, so your first question, we have an excellent relationship with Discovery and the other medical schemes. We have, I would say, a monthly meeting with them, and what they do is they provide us with a report, and that report says, "This is what we expect from a dispensing fee point of view and from a generic point of view," because they want generic substitution, and they tell us which of our pharmacies are not actually compliant, all the way down to this pharmacy is not compliant, this is the dispenser that's not. So we have a very good relationship. On the dashboard, we have both GEMS and Discovery specifically. They each have a slide showing them.
We still interact with all the other medical schemes, but we want them to start sharing the data with us so we can work on the dashboard with every pharmacy. It's a good relationship, and they want to interact with us. I think it's the same as the suppliers. They want independent to thrive as well. Absolutely. Sorry, the other question was. Okay. On the single, if you look at scheduled medicines, that price is regulated. It's a strange situation. We are buying it for ZAR 100 from the supplier. We're selling it to the pharmacy for ZAR 100, and they're selling it to you for ZAR 100. We get a logistic fee. The pharmacy gets a dispensing fee. That's regulated. From a dispensary point of view, the price is the price. We compete on the front shop.
And on OTC, you can play around with that dispensing fee there. And that is an ongoing battle. But what I will say is a real differentiator. And you can ask yourselves the question. The differentiator is when you walk into not just SPAR. When you walk into an independently owned pharmacy, you're seeing that same healthcare practitioner every time. And that person knows your family, your mother, your father, your kids. When you walk into a corporate, that's not always the case. And some of them are good, and others, the pharmacists move around. I would say that's a differentiator. You also asked in terms of do we offer, we must offer the same. We have to, from a dispensing point of view, in the back of the shop, we have to do the same. From a clinic, same story.
We've got to do the medical side as well as the wellness side. And that's why that 70% needs to become 100%. We've only got 70% coverage. Yes, Clicks is 30%. We need to get ours to 100%.
Yeah, just one quick question. Apologies, I might be way behind in this. Sorry, it's Darren from ABSA. In terms of the clinics, I know when Clicks launched in 2018, 2019, the big thing for them was to get the government to allow nurses to prescribe, I think, schedule three, four, and five, or up, or whatever it was. Is that still an issue? Where are we going?
Even the market thinks that as long as they go to dispensing license, they can go up to schedule four, but actually, the government did that to allow their nurses in the public hospitals to be able to prescribe and lighten the load. They're actually not allowed to, so if you look at in the pharmacy world, they have a qualification for pharmacists called PCDT, which actually is a they are allowed to prescribe up to schedule four and actually do quite a bit that let's call it a normal pharmacist can't do. We need to get as many of our pharmacists qualified at PCDT, but no, the nurses are restricted from a prescribing point of view.
Thank you.
Just a quick question from me and a follow-up from Tumi's discussion point. The skew to the journey to 300-odd pharmacies, is that more towards conversions or to new builds?
Conversions.
Conversions. Okay. Because I just wanted to find out, even on the, let's call it new bills, how easy is it from a pharma licensing point of view, given that it's the retailer model as opposed to the more corporate model?
It's not easy. There's rules and regulations around whether you can put another pharmacy. If you take urban busy areas, it's 500 meters. If you've got a shopping complex, it's 5,000 sq m or more. You can put more than one pharmacy in. They also look at foot traffic in. And then as you move out to the more country areas, they talk about five kilometers. But I'm not going to pretend. It's very competitive. Everyone's getting their licenses in. So conversions, two reasons. It's not actually just because of the difficulty with the licenses. It's also about just bringing in viable pharmacies that are operating at a different level. So the greenfield is tough, and it does take a little while for a brand new pharmacy.
What we have seen is that when you put a brand new pharmacy next to a thriving SPAR, they get to break even much quicker. They do well.
What is your capacity utilization in the warehouse? And do you feel that you have enough capacity for the expansion? And on that, UPD has been known for their automation. Do you need to invest more to get the cost efficiencies in the warehouse down? Or do you feel that is a lever?
Just to answer the first question, so if you look at our existing facility, we've got lots of capacity. Okay? Now, we've also got our biggest region, both in terms of number of pharmacies as well as rand volume or volume, is the Western Cape. When we get this wholesaler up and running, we're going to be taking volume out of our existing facility. We'll have lots. We're already planning about how we're going to fill that up and working with the greater SPAR business. Automation, definitely something always worthwhile looking at. It's not essential out of the gate, but it's definitely something that we'll look at. Yeah. We don't have. Both scriptwise and our wholesale are not automated. We cope very, very well. Automation works. We've been both overseas and local to see what's available.
But it's not in the planning right now. It doesn't need to be.
Doesn't seem like there are any more questions in the room. Just for those on the live stream, we'll deal with all the questions after Angelo's session. So, Angelo, over to you.
Just to wrap up today, I think, firstly, to our key members, for many of you, new experience. So thank you for stepping up. I really appreciate that. Just in terms of where the business finds itself, I mean, there are a lot of strategic crossroads we find ourselves at. Some very big issues we've had to deal with in the last year or so that we continue to deal with. I think we've tried as best as we can to be quite transparent in terms of where our thinking is going. Sometimes too transparent, I think. But we certainly have tried to point the market in the direction we think we're going at a given time. But we have made some big achievements. I think the key achievement to start off with was the exit from Poland. It was a very difficult exit.
It's not easy to sell a business on a downward trajectory. Megan's not here. She's just taken a meeting off-site, but she did an amazing job in getting that deal put together, and Reeza, at the end, came in and had to do some fancy footwork to just get the transaction finalized, and very grateful for what they've done. I think it was a great, good achievement for us, although it came at a cost. It was important that we got certainty and were able to move on and put that behind us, I think, for everybody. Secondly, I think the renegotiation of our banking arrangements, and in particular, we appointed two joint lenders, RMB and Standard Bank, who assisted us in rearranging our relationships, our lending relationships in South Africa.
That included the taking on the risk on the Poland debt, which the portion that we brought back to South Africa that has formally been finalized now.
Just finalizing the legals.
Okay. Just finalizing the legals. Those facilities will be in place at the 31st of March, although we have bridge funding in place to deal with that until then. And then together with that, the reduction of our group debt. And that was a big lever for us to pull, big focus on reducing debt and getting the balance sheet as strong as we can. And I think the reduction from ZAR 12 billion to ZAR 9 billion is significant. It's a 25% drop in the amount of debt we hold as an organization. And we want to drop that even further. Obviously, the sale of non-core assets will also make a big difference to that number. And then just addressing the underperforming areas and not sticking our heads in the sand.
I'm not sure whether we should get points for that, but we have been quite open about where we think underperformance lies. In our case, I think that's quite easy to tell, and we want to be quite decisive in terms of making decisions in those areas, and then in terms of particularly the SA business and Max is in the room, big focus on managing cost in the business and finding efficiency. Our SA business will put a fairly big challenge at the beginning of last year in terms of how we will get a view of cost and where we were going to focus, and I think they've delivered fantastically until now, and those savings continue, so Max, to you and your team, well done, and then just in terms of the ERP rollout, KZN was something I lived through the initial conversion of that warehouse.
I have stamped in my memory standing at a little printer at 3:00 A.M. after the day of Go Live and waiting for the first label to print since 8:00 A.M. that morning with sort of three senior executives in the business at 3:00 A.M. in the middle of the warehouse waiting for this barcode to print and to recover from that and to now start delivering profits to the business. We know it's not where it should be, but we have had four months consistently of profits in KZN, and we're heading in the right direction, and as I say, I think we're going to see the benefits of that in H2, maybe not so much in H1, but the business has been profitable in each of the months individually, not just in cumulative.
I think those are in the 12 months or 15 months that the new management team have been around, those are some pretty stellar achievements. Having said that, it doesn't talk to the underperformance in the rest of the business, so we can't walk away from that. We also had to undergo a serious leadership transition on the back of the governance failures in the business. As you know, our chairman stepped in as an executive chairman for a period of six, I'm trying to think it was about eight or nine months before I came on board. It was an extensive search for leadership. I'm very glad to say our board did take the view. I won't pronounce anything on my appointment. That's for you to judge.
But I think certainly Megan and Reeza, we took the right approach where we were quite deliberate, waited for the right candidate, didn't force our hand because you wanted a candidate tomorrow. And both of them have really come into the business and revolutionized their areas. And I'm very grateful for that support. And then we've also made a number of other leadership appointments. Some of them seem to confound the audience because I've had some questions about this, and I'm happy to unpack this at some time. One or two of you have individual appointments that we'll deal with. But we've got Bridget Da Gama in the room or was in the room. I think she might have stepped out now.
We've stepped in as the Group HR Executive, primarily focusing on South Africa, but we are looking at what we can do to harmonize our employment practices across the divisions, particularly South Africa and Ireland. Obviously, given the review of the other operations, it might not be appropriate to do that there. We've got Zikhle who's joined us and put today together between Zikhle and Yahish. So Zikhle, thank you. Thank you, Z. Well done. And Zikhle has got lots of pressure on her because something that we want to be, and certainly this comes directly from me, something I will take credit for. I really want this to be the most approachable and available management team that they can be. If you need to talk to us, you have some questions.
I want us to be available and to be as open and as transparent as we can be, firstly, because of our recent history. But secondly, I think the majority of you hold a share in this business. I guess our ends should be aligned, and that's something that we really believe in, and we hope we demonstrate. And then you would have met Thami this morning who presented on TOPS, his first presentation. Thami comes with a really stellar career behind him. Joined us from Vodacom. Before that, was the head of marketing for Nando's. And I think given where our TOPS brand positions in terms of the fun space we play, that is a really good synergy or there's an advantage there. And then Gerhard Ackerman recently joined us as the head of merchandise.
role at] former Shoprite a long time ago and then spent some time, short amount of time at Pick n Pay and most recently Takealot as a consultant to Takealot for a while for the last two years. So we've had to incorporate this leadership into a cohesive team, and I think we've done a really good job with that. We're starting to have some really strong debates, some really strong arguments. And I think when there's good banging of the table and headbutts, that's always a good sign, provided you can have a beer afterwards. Well, maybe not Reeza, but the rest of us. But Reeza's always there, to be fair. I think something that we really, the core enabler for us around everything is this, is our ability to build financial resilience. And we've got a pathway to building a really, really strong balance sheet.
We have assets that can be leveraged, and we're really looking at how we leverage those assets and most appropriately use them. I had Marie almost pleading with me earlier not to sell our fleet. And we've got a massive debtors book amongst our retailers that runs to ZAR 10 billion there. And how we best use those assets to ensure that this balance sheet is well shaped and optimally shaped so that we can invest in the business where appropriate and have the support of shareholders, I guess, is one side of it. The other side is so that we shape this business in a way that we can grow and have the capacity to be able to invest where we need to is important. And that we are looking at every element of that balance sheet to reshape it.
I think we've done a good job so far in a relatively short amount of time, and we'll continue to look at how we maximize what we have in front of us. Cost optimization measures. I spoke about us looking at our target operating model, and I know Max spoke about it as well, and the idea that you blend what we did well in the past and this idea of a model that's built around 853 and look to the future and say, "How do you change the shape of that to make sure that you're as future-fit as possible?" When we look into our crystal balls, as we all have to, I guess, what does that look like in five to 10 years' time and start shaping that now for the optimum output for ourselves as well as our retail partners?
Because their success is ultimately our success. And that's something that we're really focusing on right now. Cost optimization in the short term is the benefit. The benefit in the long term is the true benefit, is what the business is shaped like in future. And that will ensure some of the stuff that I guess, as an organization, we haven't invested in enough in the past is we can maximize cash right now and really drive profitability in the short term. And there's some benefits to that. But the reality is if you don't invest into the future, you pay for it in the long run. And so when I talk about cost optimization, it's not only with a lens of today. It's looking ahead. And then strategic growth initiatives. I think the important thing is that we know who we are at our core.
I hope you saw this come through the day with each of the presenters. I promise you we didn't have time to align on this. It came about naturally. Is this true belief that our core competency is to take a group of disparate independent retailers, pull them around one brand, and make that brand sing? Our ability to unleash their potential is going to be a really great thing for us in the future, and particularly as we start thinking about where else we can apply this. Pharmacy is that vector for growth, maybe in the short term. But there are other areas, and all you have to do is take a dive to any strip mall in the country or big mall and have a look at where independent retailers are thriving in particular industries.
The question we need to keep asking ourselves is, is that a business that can benefit from formalizing whilst keeping independent retail? And if the answer is yes, it is something we can look at. But the predeterminant to that is we have to have a strong balance sheet. And I think for the next three-to-five years, that must be our focus. It won't mean we'll turn away every opportunity, but for now, the focus is in really strengthening the business that we have, and particularly the business in South Africa. In terms of Switzerland, I've gone through this. It's a long, boring timeline. I was looking at it earlier and amazing myself at 30 days. If 30 days is that long, one-to-two years doesn't feel right. But I think the timeline for this to resolve itself might be quite long.
We will have real clarity, I think, by August or September as to where this is going, and depending on that outcome, we might have a court case or not. But right now, I think it's premature to judge, and then I guess I'll mention along with this slide the Giannacopoulos matter. So the Giannacopoulos matter is not something we can hide away from. I think we've dealt with it quite firmly in terms of talking to the market. The reality is that the family feel emboldened, I guess is probably the right word, by some of the negative media, but having said that, I actually had a chat to Harry yesterday about he was giving me some advice as to growing our business through driving the butchery very passionately, so the relationship on a day-to-day basis is working with the business.
It's probably as good as it's been in the last five years. The reality is that their expectation in terms of what a settlement could look like is just way outside of what is reasonable in our view. And together with our experts, that number is way far apart. We have offered to go to arbitration as an opportunity to bring this to fulfillment in the short term because arbitration, within two or three months, you can get a retired judge to have a look and make a ruling. The family have felt that they want to go to court. I can speculate as to what the reasons for that are, but I won't do that in this room. But the reality is that's going to be a long, drawn-out process.
They served us with that summons two and a half years ago now, and they haven't done anything to drive it forward. So the next stage is to go to discovery. They haven't pushed the button. We've taken a wait-and-look or look-and-see approach because we think that's prudent right now. And I guess we can progress that as well. And we're debating internally as to whether that's wise to do now or not, strategically what the way to deal with it is. The reality is this is something that's probably, if it goes to court, will play out over a period of 10 years. If our personal choice is to just go to arbitration and get it done, unfortunately, that's not something we can do on our own. Both parties have to be willing to accept the outcome at the outset. So I guess I hopefully dealt with that directly.
In terms of SA, I was talking about KZN and rebounding. As I said, the first six months, four months of profitability in a row, which is the longest streak we've had. We expect that to continue. I don't think that business will go back into a loss-making position. We'll see some big benefit in that in the second six months, not so much in the first, because in the second six is when we took the write-offs or not write-offs, the revaluation of some of those rebates, and from a governance point of view, we have seen the worst that can happen. So we know that the governance around this project is super important. Myself, Reeza, Megan, and Max sit on that steering committee. We're involved in every decision, and we are committed to making sure that the risk is mitigated as we go through this.
We do have a balance to find, though, because there's a super risk-averse way of doing it, which means that we go with the last distribution center in 2035, at which point I'll hopefully be long retired, and the reality is we can't live with this risk over our head the whole time, so you've got to find this balance between moving quickly and delivering something without too much risk. At this stage, the early indications are that we can - not the early indications - we want to deliver the full project by the end of calendar year 2027, so we want to deliver three distribution centers next year and three distribution centers the following year, and I think that's achievable. In terms of SA, I mean, this is probably the core concern I have right now and where we're putting a lot of our focus, which is driving top-line sales in SA.
We weren't effective. We weren't as effective with promotions in the first six months of the year or first four months of the year. We've certainly done the dial on that in the last month or so, and are starting to see the impacts of that, but we underperformed in this metric. I think our retail is okay, and even the retail number, I'm not happy with. The target I've set, the business. Actually, maybe let me not go into that. Don't give too much detail, but we need to get up near sevens and eights in the medium term. From a retailer loyalty improvement point of view, the lack of or the lower level of promotions has impacted us.
Promotions is an area of the business, as you would know, or I guess intuitively, because we mark in the stock down as one area of business where we get 100% loyalty. That's been part of the loyalty drop, so getting the promotions right is going to fix a portion of that. The second element, which I know I've spoken to most of you about, has been this mixed element where we're having our low-end stores growing at a higher rate than our top-end stores. Low-end stores' loyalty is lower, so you have a mixed impact on your overall loyalty. That's about half the problem, so we need to get our top-end stores growing as well, and then to look at this retailer state that we have and to shape it, the formats properly so that customers appreciate what each format stands for.
Because at the moment, I'm not sure as much as it was in the past that people appreciate the difference between a KWIKSPAR and a SUPERSPAR. But I do think that if we deliver it correctly, they will intuitively understand the difference between a KWIKSPAR and a SaveMor. And that's what we have to deliver to be able to stand out in the market. And in between, you're going to have the SPAR brand that needs to be the mass market brand that we will drive our business behind so that we can be more aggressive on pricing. In terms of retail partnerships, I think this is something, especially with the success of Engen, our business is always viewed that we wanted to grow everything internally. We took on a coffee brand called Beantrees. We grew to 300 Beantrees across the country.
If I ask the room, how many of you know what Beantrees is? Just wait. Looking for some hands. I'm impressed. That's more than the average consumer. But there are certain categories I think that we can learn lessons from and where we aren't going to be the specialists. And bringing the specialists in is going to help us deliver our growth. And we've seen in the pilot stores around Vida, where we stuck Vidas in the Western Cape, although that is their heartland. But we've seen. We haven't even seen incremental growth. We have seen growths in multiples of turnover as we've put an established brand into our stores. The combination of the two really works well. Although we can't get Vidas into every store because they've got their own franchise arrangement, it is something that we want to drive in the next period of time.
And then looking for other partnerships in those areas where we are never going to be the specialist. It takes pressure off our P&L because to invest funds to develop new concepts, it needs to be focused. If you're trying to develop everything from an installed chicken concept to a coffee concept to a health and beauty concept, we need to focus our energy on the ones we can be best at and then where there are industry experts out there who are willing to lean into partnerships. And I'm hesitant to say, but something like Uber Eats potentially as well, where you can deal with a specialist who knows the area. You've got to find those right combinations.
And then lastly, fixing our new business pipeline and finding a way to deliver more stores in a retail model where you are protecting the existing franchisees built on the back of organic growth is a solution that we need to find. We're a long way towards developing that strategy, and we need to deliver that in the long term. Looking ahead, as I say, our ambition is to unleash the power of independent retail in all our businesses. Our model, it's the one thing we have consistently across all our businesses in Ireland, Switzerland, the U.K., and SA.
If you look at whether it be through our cash and carry businesses where we service independent restaurants who need good quality meat in Switzerland, or whether we have a value center in BWG Foods who services little independent cafes, unbranded, or through our food service business selling into independent hotels on the Irish coast, whether it's in our liquor stores in SA or in our building materials stores. It's the one common strand that runs all the way through our business, and we need to treasure that as something that we do exceptionally well, probably the best in this, not probably, the best in this country. We want to be the best in the world at it, but that means we need to fix the profitability of the SA business.
And we need to ensure that our retailers are as profitable as they can be by working with them and making sure that their needs are as important to us as the end customer's needs. And then this TOM exercise and ensuring that we do business as efficiently as possible and as sustainably as possible. We haven't really spoken about ESG today, but that can be. If I let Kevin in here, we definitely wouldn't have finished at 4:00 P.M. I guess the last slide, this framework through which we want to do that. One is focus on the things we need to harden and do well, go back, make sure that the engines that support this business are strong so that we can look at where we want to grow without too much risk and take some chances.
And then lastly, just clarify where we found this business and make the business seamless and intuitive in a way that just makes sense. And there's still some work we need to do there. And then execute, which we haven't always been the best at, particularly at retail. We need to get better at it. And that really is our priorities for the short term. On to the Q&A.
Angelo, two questions just on profitability. I think the first one is on the wholesale piece, and the second one will be on retail. If you guys are looking at the 853 model, what isn't changing is the three. So you're going to get to the three on your budgeted timeline in a year and a half's time, so September 2026. What happens above the line that you think needs to change, bearing in mind that you say SPAR is a business that still needs to invest? That's the first question.
So I think getting to the 3% on our timeline is going to be challenging. I think given our sales performance, and we have to be honest about that and give early warning saying our assumptions built in 5% and 6% sales growth at the rate that we're growing now, that's going to set us back. And I think I did say that when the questions were asked at the end of last year, that that was an assumption that was built in. And that's going to be challenging. Having said that, I think how one builds up towards it, what happens in between is, I guess, a phenomenon in retail that's happened internationally, certainly is happening in South Africa, the addition of a significant line of other income.
So the assumption of the 8% is historical, but revenues in terms of retail media, value-added services, and other forms of additional income streams can change that quite significantly. I think the five can certainly go to four in terms of just working the business efficiently and particularly given the duplication in our business through decentralization. I think there's an opportunity there. I think the three is something that in the long term can be worked on to get that even higher, to be honest. But I think we do need to ensure, based on your second question, that we review the ecosystem and ensure that our retail partners are as profitable as they need to be.
So I think as you find avenues to rework that, you constantly need to ask your question, what portion of this do I keep, what portion do I hand away, and ensure that the ecosystem remains healthy.
Sorry, just follow up on the same question. You just said now that you have an ambition for 7% or 8% top line. So let's say South Africa is in a 5% inflation world, and your like-for-likes to keep up with inflation. That means you're going to need 2%-3% space. Across your formats, do you have enough ambition and practicability to add 2%-3% across the formats space-wise? Because that's what's going to be required, right? Unless your like-for-likes to shoot the lights out and earn a premium to inflation.
Yeah. Okay. So I think that's a very static way of looking at it. I think if you look at other vectors for growth and opportunities to grow outside, it wouldn't necessarily be space in the traditional view of things. I think we've certainly seen that from, well, one of our big competitors. Another one is trying to follow a similar route, although in a different space. There are additional categories one can play in. You can find additional customers. So finding additional retail space isn't the only solve there. But I certainly think even for our retail customers, given our years-long reliance on organic growth, and I think the last 12 months aside, maybe not even last 12 months, maybe last six months aside, generally over a period of 10 years, if you plotted out our CAGR of organic growth, it has been consistently ahead of the market.
I think that's because the independent retailer in his own mind is driving his business to above inflation growth as well.
Cool. And then the 375 target for retail, why do you guys think that's what an independent retailer needs to breathe? Now, let's say you've got 800 independent guys out there. You've got some guys making 67 guys earned losses. What happens to the guys under 375? I mean, does everybody need to make at least 375? Are you happy with in aggregate they make 375?
No. I think the target needs to be that the minimum return we want to deliver is 3.75. That's the ambition. Yeah. I think if you're making under the 3.75, your ability to reinvest in your store and remain healthy becomes compromised. I don't think we're there right now. I mean, if we measure, I'd say in aggregate, we're probably in the late twos. And as you say, it's stratified. So it's on a spectrum. So you have the really big guys who are able to get some efficiency at fives and sixes, and you have some of the smaller guys at one and a half and two. But I think, I mean, that's our ambition. I must be honest that I think there is an element of who the store owner is. So you get our big retailers who are big players that own eight, nine stores.
Some of them do upward of $3 billion worth of turnover in their groups a year. And then you get the little guy who says, well, and I mean, these are real-world examples. I used to be a prison warder. Let me exchange my pension, and I'm willing to come in and earn 60 or 70 grand a month to be my own boss. And that's maybe not something that we should stand in the way of. It's their choice to make. What we need to ensure is that the model works. So if they make that choice and they're comfortable with that life choice, that's okay. We need to make sure that the model makes sure that they're capable of getting to the 3.75.
Angelo, I'm going to put you on the spot a bit here. But with the 50 basis points VAT increase that was announced not too long ago, are you able to provide as a starting point, perhaps, the percentage zero-rated products within this table?
Yeah. I mean, I know this because I had to send it to an analyst the other day. Our typical range, so pre- I'm trying to remember - was it 2020 or 2021 that we had the move up from 14 to 15? Was it that far back? Pre that, our mix zero-rated to non-zero-rated was around 16% or 17%. It moved up slightly after the VAT increase. It moved up within, let's say, 50 basis points to 100, so about 1%. Then we saw a fairly big expansion of an additional 1% when additional items were added to the zero-rated category, and I think that was mid-COVID. Right now, it varies between 18% and 19% of our mix. But our mix is probably not representative, so I want to be clear on that because our mix is based on our whole business, right? You'll look at it.
I think it might look slightly different in other retailers.
And then based on your experience from the prior VAT increase in 2018, was some of that increase perhaps absorbed over the shorter term and then passed on to the consumer? And lastly, I think, did you notice any change in retailer and consumer behavior leading into that VAT increase?
Yeah. I think when you actually go through the practicalities of trying to benefit from the VAT increase, practically, it was very hard to do in terms of getting the margin uplifted. And I think in the South African society, I mean, it's going to sound callous to say this. We live with inflation of, I mean, our ingoing assumption of inflation is around 6% or 7%. The 1% difference on VAT is not as attractive as maize growing at 6% or 7%. So the relative attractiveness of making an effort to see upside is probably not there. And I think post the VAT change, as I say, there was a small change, probably around 50 basis points in terms of mix. But consumer behavior didn't change materially.
I don't mean to sound callous, but I think the consumer absorbs it in a country where the inflation assumption is 6%. That additional, so in this case, 0.5% that basically just gets added straight onto CPI is probably not the end of the world. I don't think it goes a long way to changing behavior. I think what might be, I can't give the Minister of Finance any tips. He's not going to listen to me. In my mind, if our concern as a country is making sure that the least wealthy people in our society can eat, the wiser thing would have been to go with a bigger VAT increase and expand the number of categories that are zero-rated for VAT. I think that would have been more effective. But that's my view. I don't think it materially changes behavior.
I don't think, certainly, we didn't see an upside the last time it went up by 1%. I think 0.5% is going to be neither here nor there. It's going to be a hell of an admin problem, though. So the fact that it's two increases a year apart is probably also just a big schlep. But I mean, right now, I think as a society, we should be focused on making sure that the poorest people in our society eat affordably. This is going to be neither here nor there, is my opinion. I think there are opportunities for them to do two things at once. It doesn't appear as if that's happened, but yeah.
Thanks, Angelo. We'll give the guys on the live stream just an opportunity.
Please, Angelo, I've got a question here from Peregrine. Is it realistic to expect the Swiss business sale, should you go that route, to realize anything above intangible NAV given current trading and the competition claim?
It's a very difficult thing to sell a business that is where performance is sliding. But having said that, there's inherent value in that business. And I think what is positive about the Swiss business is that the SPAR brand has serious value, and particularly the fact that it neighbors Austria. Austria is the only country in the world where SPAR is bigger than South Africa. And a lot of the cross-border shopping, in fact, Gerry, who's our CEO in the country, asked me to deal with SPAR International because the Austrian hypermarkets were advertising across the border into Switzerland under the SPAR brand. So there's a little bit of a conflict there. But the reason I say that is the SPAR brand's got immense strength in that area of Europe. And I think there's value to the brand.
Secondly, we've got an exceptionally big property portfolio there, or big in rand terms, so we have a distribution center that's worth quite a bit. We've just had it valued at Meg at the end of December, and very comfortable that the physical asset value there is strong, and we own three shopping centers with TopCCs in them and a distribution center, and I think the value in those supports the underlying NAV quite substantially.
Yeah. I want to add to that that I think it seems like everyone's front-running us in terms of the sale of Switzerland. And it's easier said than done. And so really, just for everyone to be a little bit patient with us, we have said in June is when we would come back. And ultimately, at the end of the day, it's easy to sell a business, but are you going to get value for it? And that's what we need to balance out in terms of that and making sure that we do the best for our shareholders and shareholder value. So at the end of the day, whatever decision we make around Switzerland will be to optimize shareholder value and the right decision for the business overall.
Thanks, Meg.
Thanks. Second question. Can you give a sense of how big SaveMor is in terms of revenue, and is it more or less profitable than SPAR SA at the operating margin level?
We don't segment the business that way. We are wholesaling, and we sell to each of our customers. So we don't segment operating income statements per banner. But it certainly is a profitable business for us. Right now, it's probably about the same size as KWIKSPAR.
Yeah. Thanks, Angelo. On liquor, given all the retailers are pushing aggressively into this category, is the share being taken from independents mainly?
Yeah. Liquor's very. It's a very competitive landscape at the moment. I think we still hold the edge in this space.
Would argue yes, probably independents have suffered, but also liquor is quite opaque in the South African market. There's quite a bit of tavern trade that aren't just independent retailers that do off-consumption sales as well as on-consumption sales. The on-consumption channel versus the off-consumption channel can get quite blurry and murky. So I think it's a little bit of everything.
Okay, thanks, Angelo. A question on corporate stores. How many stores are company-owned? And is the strategy with these stores to only hold on to them in a transitionary phase in order to refranchise as soon as possible? And please give us an, oh, well, you've already done this, an update regarding the SA litigation.
Okay, so the corporate stores remain, as we gave it a half year; it's about 50 stores with their associated TOPSers. We've successfully exited one, three for this financial year so far. Our view is yes, it will be transitory. We really view it as warehousing stores to sell on to independent retailers down the line. Something else that strategically, given our drive for new business that we might have to take on, is take future views on sites when an independent retailer might not want to take a site that will work in three or four years' time, but the shopping center is being built now, as we're seeing with many of our competitors, where you know, and now it is exploding; the shopping center is going up right in this moment. I think we can use our ability to run corporate stores in that event as well.
So we can take a view on a site, set it up, wait until the market matures, and then sell it on, hopefully, at a premium once the market is ready for that site. And then there are other areas where we get forced to hold stores through defensive mechanism. But the idea in the end is always to sell the store on to independent retailers.
Thanks, Angelo. I'll probably do two more online and then we can wrap up. With the depopulation trend and people moving from deep rural to more metro locations, how is management thinking about this from a SaveMor rollout perspective?
It's interesting. I mean, we obviously think about this definitely, and we're struggling to land this point, is that SaveMor is only one vehicle into rural and township communities. At the moment, our SPAR brand is exceptionally strong in township and rural communities. I'm not sure whether it's depopulate—what was the term that they used?
Depopulation.
So it's, I mean, urbanization, and as urbanization happens, you're going to find that the townships are going to outgrow formal suburbs, I guess. Our positioning in those townships is strong right now. And I think I did describe this earlier in terms of the use of SaveMor as the opportunity to close some of the smaller gaps where a full-blown SPAR store won't fit in. And I think the combination of SPAR stores with SaveMors in dense townships is something that I think can win in the long run. And I guess we see this, as I said earlier, and it's not an exact comparison, but an approximate one, similar to how Shoprite uses Usave to cover some gaps, right? The Usave business is used to pick up those smaller gaps that big Shoprite stores can't cover.
I think the SaveMor model will look much the same.
Cognizant of time, so I'll just do one more online, Angelo. What is the typical upgrade cycle for SPAR stores? And have the retailers been keeping up with this? Further, what kind of sales uplift do the retailers see post-upgrade?
So the typical cycle that we look for is we look to revamp about between 20% and 25% of our store base a year. That ensures, given some assumptions around it being evenly spread, that you go through a revamp cycle once every five years in every store. That's our view. I think it's been uneven, so we've had a number of retailers, particularly post-COVID and then load-shedding, who've held back on revamps, but then we've had many who've really spent immense amounts since then. So it's a little bit uneven at the moment, and there are areas that we need to definitely put some focus on and getting those retailers to reinvest in their businesses. Was there a second part to the question?
Yeah, so typical, I mean, we used to see post a revamp you'd actually see during the period of the revamp, so this is 10 years ago, you'd start seeing a sales uplift as you revamped areas of the business. These days, the sales uplift is not as big as it used to be, and it's more delayed, so you start seeing the revamp kicking in three or four months after completion rather than at completion. You probably see a sales uplift, a deviation from the norm of between 10% and 15%, and I think in the past that number used to be 20%.
They said I can only ask one, but I'm going to try squeezing just two short ones. The first one, you mentioned earlier that you were able to remove the Switzerland covenants. Did that come at the cost of higher interest costs?
No.
Okay.
No. It did come with some interbank activity, but no additional costs.
Okay. And then earlier, when you were talking about the SAP implementation on the part of the Steering Committee and the Business Transformation Committee, you mentioned one of the reasons they're in place is to manage governance risk. So I couldn't understand how governance risk could be an issue in the implementation, if you can just elaborate there? Thank you.
I think any project where you are spending significant amounts of capital over its life cycle, the capital expenditure on the SAP build or the ERP build is going to be somewhere around ZAR 2 billion, slightly over ZAR 2 billion. The risk that the governance structures aren't in place and that big decisions get made outside of the senior leadership is a real risk, and that each decision is well thought out and led by really good data, and that risks of implementations are weighed every time a key critical decision is made, that is weighed by the appropriate audience with appropriate seriousness, is something that's important. And I think we learned that lesson the hard way.
Perfect. So we've reached the top of the hour. Management does have another engagement just before we have our dinner later today. So I just want to say from SPG and everyone in the room, we really appreciate the insights shared by you and the team. A lot of effort put into the presentations, hugely insightful, as I'm sure many in the room would agree. So much appreciated with that. To everyone in the room and online as well, we appreciate you joining us for this Capital Markets Day. Obviously, there's still two days ahead of us with the KZN sort of site visits and DC visits, as well as the Western Cape, again, DC and then the store visits. Just with regards to the presentations, as Ish has mentioned, the presentations should be up and available online latest by tomorrow afternoon.
And for those of you attending the dinner, we'll start at about 6:30 P.M., but management will come through from about 7:00 P.M. So just flagging that as well. Thank you so much for your time. Really appreciate it, everyone. And Angelo?
Yeah, Ish, just from us, thank you for putting the day together. I mean, you're only going to have breakfast at something before seven, so you've put the dinner together, I think, just from us to you. Thank you for arranging the day. Then to everybody in the room, I think it's always, I guess, with a bit of trepidation that management undertakes something like this, an event like this, partly because we're terrified about the questions you're going to ask us and putting us on the spot. Then the second part is whether there's enough interest in our business to be able to pull a crowd together. I think we really are exceptionally, one, impressed at the amount of interest there is in our business, and secondly, thankful that you've all taken your time, taken the time out.
It's not every day that you get 30 analysts to voluntarily enter KwaMashu. So thank you to all of you for that. Yeah, it's not something that we take for granted, and we appreciate your interest in our business and your willingness to engage with us on the important topics in our business. Yeah, thank you. And then to our management team, who I didn't thank, Max, Reeza, Jeremy at the back there, Hawie's had to leave, Thami, and poor Hawie and Thami, and you, Jeremy, your first time in front of a crowd like this and Max. It's a hugely intimidating thing to do. And then to get a lecture about specific and precise information like the day before doesn't help either. But yeah, just thank you to our team for showing up today. And then unfortunately, I won't be able to join you guys tomorrow.
Siegfried is going to lead the tour. Both, well, all three, Megan, myself, and Reeza aren't available tomorrow, but I'll join everybody on Friday in Cape Town, and then we'll join you for a lunch in the afternoon. So yeah, for those of you joining us on Friday, yeah, cool. Thank you. Thanks, Angelo.
Perfect. Thank you, everyone. Really appreciate your time.