Retailer Spar is making some changes to its SAP enterprise resource planning strategy as it faces a multimillion-rand lawsuit over the botched implementation of the project.
This emerged when the JSE-listed Spar today issued a trading update for the 18 weeks ended 30 January.
In a statement, the retailer says the group has made amendments to the SAP rollout strategy to focus on capability enablement rather than distribution centre integration.
According to Spar, while the initial approach integrated warehouse, finance and purchasing systems, the revised plan separates finance from distribution centre operations in order to reduce disruption and execution risk.
This finance transition to a single SAP environment with a unified chart of accounts will be executed in this financial year, establishing a single version of financial data and enabling efficiency and governance improvements, it states.
Spar notes that following the finance go-live, the next phase will enhance drop shipment reporting and credit management, centralise purchases and strengthen pricing governance.
“We continue to manage the ongoing rollout with risk mitigations to our business operations at the forefront of our planning,” says the retailer.
Fight with franchisee
The announcement comes as Spar is facing a R168.7 million lawsuit by one of its largest franchisees, the Giannacopoulos family, over failures in the SAP system rollout at its flagship KwaZulu-Natal distribution centre.
Spar Group encountered multiple obstacles during the deployment of the SAP software, particularly at its KZN distribution centre, which was the first to adopt the new system in February 2023.
The transition resulted in various go-live and integration issues, significantly impacting distribution operations in the region.
These challenges disrupted stock deliveries to retailers’ stores, leading to reduced service levels and a decline in retailer loyalty.
According to Spar, in or around October 2021, a member of the company’s board received a whistleblower’s letter containing allegations in relation to the SAP implementation project.
It revealed that three directors, who have since left the company, ignored the whistleblower’s concerns about the botched rollout.
Disclosing the losses it incurred, the retailer told ITWeb via e-mail that as previously disclosed in the group’s 2023 annual results, the SAP implementation challenges had an estimated R1.6 billion impact on sales.
In today’s statement, Spar tells shareholders: “The group confirms that it has been served with a summons relating to alleged claims arising from the SAP implementation at the KZN distribution centre.”
Spar says it previously engaged with the claimant to seek resolution of the matter; however, discussions did not yield an agreement.
“It should be noted that the current amount claimed significantly exceeds the initial claim of R5 million, as presented by the claimant.”
According to Spar, to date, all KZN retailers affected during the early SAP implementation period (except for the claimant and one additional retailer) have reached amicable settlements with the group.
It notes that service levels at the distribution centre have since stabilised and are now consistent with industry standards, as previously disclosed.
Management changes
As the SAP saga drags on, last week the retailer announced that group CEO Angelo Swartz will step down from his role and as an executive director effective 28 February after 19 years with the company and just over two years as chief executive.
Chairman Mike Bosman thanked Swartz for his leadership, saying the company is now positioned to build on recent progress, while continuing to execute its strategic priorities, including improving performance in Southern Africa, strengthening margins, reducing debt and simplifying the portfolio.
The board appointed current chief financial officer (CFO) Reeza Isaacs as group CEO from 1 March, citing his role in improving financial governance, capital discipline and balance sheet resilience over the past year. Chief operating officer Megan Pydigadu will succeed Isaacs as CFO on the same date, ensuring continuity in financial oversight.
Meanwhile, over the 18 weeks ended 30 January, the retailer says the group operated in a highly-competitive market with low food inflation and deflation in several key categories.
In response, Spar deliberately intensified promotional activity to support retailers, protect volumes and reinforced its value proposition, it adds.
Against this backdrop, the group wholesale turnover from continuing operations for the period was 2.1% up year-on-year.
However, gross profit margins in Southern Africa declined relative to the comparable prior period.
“This reflects an unfavourable sales mix, the impact of our targeted promotional strategy over the Black Friday period, and our continued investment in loyalty and margin recovery initiatives in KwaZulu-Natal.”
It points out that a significantly rising cost base, including rising operating and wage cost inflation, continued investment in systems transformation, IT infrastructure and the SAP rollout in FY2026 continue to negatively impact margins.
“In response, and as previously communicated, Spar has identified a set of structural initiatives to realign its cost base with prevailing trading conditions and medium-term margin objectives.
“Distribution network optimisation is a key focus area and forms part of a broader structural reset designed to support sustainable operating margin improvement.”
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