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Case study: The SPAR rural hub journey
Small-scale rural farmers are the key to a new and sustainable future in South Africa. They can ensure food security, affordability and provide valuable nutrition for rural communities. This is why SPAR invested in developing a rural hub model to support these farmers as part of our supply chain.
SPAR’s first rural hub was established in Mopani, Limpopo, in June 2016 based on the concept of a central fresh assembly point (FAP), which acts as a collection and consolidation point of a range of fresh produce. The produce is sourced from smallholder farmers to supply local SPAR stores within a radius of up to 200km from the FAP. Five small-scale farmers joined the first rural hub business and the first permanent FAP opened in Ofcolaco in August 2017. This year, ten rural farmers supplied the hub, many of whom could finance a portion of their business themselves for the first time – a sign that they can now stand on their own feet.
The second rural hub business was established in Ikhwezi, Mpumalanga, in October 2017, with a group of 36 smallholder farmers.
A central vs direct hub model
Since establishing the Mopani and Ikhwezi FAPs, several challenges became evident:
- Low-margin products, such as caage and spinach, continued to be sourced by local SPAR stores directly from smallholder farmers in close proximity to the stores. However, many of these smallholder businesses were at risk as they do not have the necessary food safety accreditation to sell their produce directly to stores. Routing these products through the FAPs, on the other hand, incurred unnecessary transport and handling costs.
- The hubs started trading in a wider range of higher-margin products, such as potatoes and onions, not grown by local smallholder farmers, to maintain volume throughput.
We had to find new ways for the economics around delivery and packing to make sense. There was a need to develop a model to transport certain produce directly from farmer to store, while other items had to be distributed through the central FAP.
To ensure that the farmers in the direct supply chain achieved local.g.a.p certification, the rural hub technical team provided food safety training. We are also introducing technology solutions that will reduce the impact of environmental risks and enable farmers to grow high value crops and extend their growing seasons, thereby improving their sustainability.
Rural hub performance summary
The Mopani hub purchased produce of R1.26 million from ten hub farmers/groups during 1 July 2018 to 30 June 2019. Crops included green beans, baby marrows, butternuts, baby corn, caage, watermelon and lettuce. The Mopani hub supplied 41 customers, most of which were SPAR stores. A significant development during the past year was the increase in sales of produce from the hub to informal traders.
During the reporting period, the Ikhwezi hub purchased produce of R1.16 million from 24 farmers. Crops included tomatoes, caage, butternut, green beans, bitter melon, lettuce and sweet potatoes. The Ikhwezi packhouse supplied 27 customers, most of which were SPAR stores.
SPAR remains a major funder
In South Africa, formal credit providers are not geared to provide funding to small farmers who, in many cases, do not own the land on which they are farming. Therefore, SPAR continues to directly provide input loan funding to farmers.
These loans allow farmers to purchase or pay for agricultural inputs such as land preparation, seeds, seedlings, fertilizers, plant protection chemicals, labour, electricity and transport.
SPAR further purchased tractors and equipment to take care of land preparation according to each farmer’s cropping plan. The hub technical manager schedules the tractors according to the farmers’ needs.
Establishing more hubs
The rural hub team is working with the Rapid Agrarian Socio-Economic Transformation Programme team of KwaZulu-Natal’s provincial government to establish further hubs, and are also exploring options in iLembe, KwaZulu-Natal, with Enterprise iLembe, the district’s economic development agency.
A hub assessment and feasibility exercise were done in the Raymond Mhlaba municipality of the Eastern Cape in partnership with the Raymond Mhlaba Development Agency, the municipal development agency and the Environmental Learning Research Centre at Rhodes University. A report and recommendations are expected in the next financial year.
Risks, opportunities and action points
Risks and opportunities |
Mitigation and action |
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Both the hubs and farmers need to achieve profitability to ensure the model’s sustainability |
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Each hub should be enabled to deliver affordable produce to rural consumers |
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We want to include additional farmers in the model |
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Measuring the impact of our nutritional campaign
Improved food security and nutrition are two cornerstones of the rural hub business. In 2018, SPAR commissioned comprehensive research on nutrition in rural areas where there are SPAR stores.
The research indicated that dietary diversity in rural hub areas is low. There are opportunities to increase the intake of fruit and vegetables in the communities surrounding the hubs. Based on the research, a nutritional campaign was developed to increase awareness and provide education.
By providing consumers in targeted areas with messages, tips and opportunities to learn about the benefits associated with certain fruits and vegetables, the campaign supports health and well-being in communities and drives demand for rural hub produce.
In the past year, the nutritional focus was on three SPAR stores visited bi-weekly by the rural hub nutritionist and nutritional co-ordinator. A further 20 stores in the Lowveld received point-of-sale material.
During the campaign, the rural hub team developed value combination packs with different vegetable products bundled together. These provide low-income rural consumers with great value nutritional products.
SPAR store sales were analysed to determine changes in fresh produce purchases and the number of customers purchasing fresh produce. Customers were interviewed about their perceptions, thereby informing further campaign content and processes. Since the campaign could have influenced people’s purchasing behaviour beyond the supermarket, we interviewed traders at the open market to gauge if they are experiencing any positive or negative effects from developments in the SPAR supermarket.
The concept of rural farmers supplying fresh produce to SPAR stores started as an aspirational idea. In theory, we knew that this would provide employment, grow rural economies, ensure food security and improve nutrition, reduce transport costs for SPAR, shorten lead times, and increase freshness and shelf life. There were evident challenges, such as financing, infrastructure and skills. Although the hubs are not yet profitable, we believe we have created a sustainable model that can be rolled out nationally.
Key risks facing suppliers
Political instability in SPAR markets may hinder trading
Disruption of operations may occur due to labour disputes and/or industrial and mass action
Transformation issues across all areas may negatively impact the business
Our response
The scale of our logistics and distribution systems ensures fixed costs are shared. This provides suppliers with significant volumes at reduced operating and unit costs. Joint business planning with our suppliers in each operating region encourages vertical co-ordination and efficiency.
Show more…South Africa |
We focus on trade marketing, and track sales volumes and value against a scorecard reviewed twice a year. |
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Ireland and UK |
Within BWG Group, joint business planning creates a sustainable climate of co-operation with suppliers. We consistently track and report inbound service levels and implement bespoke plans with key suppliers who are critical to effective collaboration and sales growth. |
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Switzerland |
We have joint business planning sessions with major suppliers to identify mutual cost benefits. We rolled out a central billing and drop shipment network enabling small to medium-sized suppliers to participate in an expanded retail network. |
Advances in technology and analytics enable us to work with suppliers to identify projects that are improving freshness, reducing waste, improving availability and reducing operational costs for both parties. Examples from our South African operations include backhauling and supply chain mapping.
Show more…Where possible, we collaborate with suppliers to facilitate backhauling and one-way loads when delivering goods to retailers on their return journey from our South African and cross-border distribution centres. We deliver goods to retailers near our suppliers, collect goods from suppliers and return to the distribution centre with a full truck. These initiatives reduce unnecessary labour and fuel costs associated with empty delivery trucks returning to their point of origin. Optimised supplier fleet utilisation helps reduce our carbon footprint.
Supply chain mapping uses our cost-to-serve modelling tool and enables us to work with our suppliers to optimise the most effective route to market. These initiatives result in increased efficiencies and shared savings for our suppliers and the group. By stripping unnecessary costs from our supply chain, we pass the cost-saving benefits onto our retailers.
A sustainable food system is a collaborative network integrating every aspect of the value chain to ensure environmental, social and economic value for communities and regions. One of SPAR’s commitments in terms of a sustainable system is to innovate through our house brands. We made significant progress in working with our suppliers towards sourcing responsibly, reducing waste and implementing biological farming. Our Freshline team, for example, assists local farmers in the Freshline supply chain to adopt more sustainable farming methods.
Show more…Most of our procurement happens at distribution centre level. Certain products are sourced from local suppliers at store level. This enables sourcing that supports local enterprises.
Due to this mixed approach, we work with retailers and suppliers to encourage sustainable procurement and transparent sourcing. Our emerging farmer development programme, focused on rural hubs, assists vertical co-ordination between commercial and community farmers to benefit surrounding rural economies.
With the growing participation of emerging farmers in the SPAR supply chain, we adopted localg.a.p. as an entry level food safety standard to achieve full compliance with GLOBALG.A.P. Large-scale commercial farmers are expected to fully comply with GLOBALG.A.P. Suppliers are expected to comply with the Global Food Safety Initiative.
Other small community suppliers working with individual stores often find the cost associated with food safety certification prohibitive. To assist them, we developed a cost-effective solution in partnership with Entecom. By forming groups of small suppliers in the same area, they can complete a large portion of the certification online and have access to a shared consultant to support them through the process. This enables them to join the bigger SPAR family – evidence of how we live our family values.
We conduct site visits and collect data on our South African house brand suppliers’ environmental management systems. This includes energy use, transport, greenhouse gases, waste and waste water, water use, emissions, pollution prevention and treatment of hazardous substances.
The launch of any new food concept requires extensive dealings with suppliers to ensure sustainable, scalable and reliable access to the product. We are aware that suppliers risk losing their share of business when new suppliers are introduced. Therefore, buyers are expected to objectively assess strategic value and benefits in managing their supplier portfolio.
Our strategic focus area to embed diversity and transformation applies to our supply chain and supports our commitment to ethical business practices. Although SPAR qualified as an empowering supplier according to the broad-based black economic empowerment scorecard, we did not achieve the minimum points required for enterprise and supplier development. Therefore, transforming our pool of suppliers needs improvement.
Show more…We engage with non-profit organisations, suppliers and activist groups to erase any unethical practices carried out in our supply chain. We understand that it is difficult to address these issues and are actively driving education and awareness across our supply chain to foster change.
We address any instances where unethical practices are identified directly with a supplier.
We also work with suppliers to encourage sustainable product development and transparent sourcing. Our rural hub programme encourages vertical co-ordination between commercial and community farmers to benefit surrounding rural economies.
Disruption of operations may occur due to labour disputes and/or industrial and mass action
Poor data quality and analysis capabilities may prevent effective business intelligence
Transformation issues across all areas may negatively impact the business
Our response
Our values of entrepreneurship, family values and passion are an integral part of who we are. These values remain top of mind and are integrated into our human resources processes. This includes, for example, employee on-boarding, training interventions and recruitment, as well as employee recognition campaigns.
Show more…Our values are integrated into our leadership capabilities and form part of management development and performance management. This helps foster meaningful workplace interaction.
The members of our Values Committee act as catalysts to drive values-based behaviour. For example, shop steward training emphasises the understanding our values and culture, and the importance of maintaining a positive culture.
We respect the principles aimed at promoting and protecting human rights. This includes the Universal Declaration of Human Rights and the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work.
We were recognised as one of South Africa’s Top Employers in 2019. This is the sixth year we were compared with top organisations worldwide through the survey, and certified based on an independent audit. Our employee offering expanded as the group increased its footprint through acquisitions over the past few years. Employees now have career opportunities across the group in different geographies.
Show more…Crucial to the Top Employer certification procedure is a stringent research process – the Top Employers Institute’s international human resources best practices survey – to assess participants against the standards set to achieve the certification. To further reinforce the process’s validity, the answers were independently audited. This research verified our outstanding employee conditions among a select group of certified Top Employers. SPAR earned the certification as a Top Employer because our employee offerings across measured criteria surpass the minimum requirement.
We uphold our employees’ rights to freedom of association and collective bargaining, particularly as this supports an industrial relations climate conducive to providing excellent service to our retailers. We maintain positive relationships with unions at the relevant distribution centres. In South Africa, we have a long record of strong relationships with the South African Commercial Catering and Allied Workers Union (SACCAWU). Since 2018, we have built a relationship with the Transport Retail and General Workers’ Union (THORN).
Any disruptions in the supply chain due to industrial action result in out-of-stock situations directly impacting our businesses, relationships and reputation. Such disruptions also carry potential risks related to the safety of our people and assets.
Show more…Three of our South African distribution centres, namely KwaZulu-Natal, North Rand and South Rand, are unionised and have recognition agreements in place with SACCAWU. The distribution centres engage in wage negotiations according to a cyclical programme. These negotiations are directly conducted between senior management and union representatives. The other five distribution centres, namely Western Cape, Eastern Cape, Lowveld, S Buys and Build it, are not unionised.
BWG Group maintains positive relationships with two recognised unions, namely the Services, Industrial, Professional and Technical Union (SIPTU) and the Mandate Trade Union.
We build good relationships with our employees and unions and, if disputes occur, we deal with them timely. We have green area meetings where departmental objectives are discussed.
We have management and shop stewards’ meetings, workers’ councils and various forums in place to ensure workplace communication is effective. We invest in developing our shop stewards and share information with them. We involve union officials as stakeholders to ensure we educate them about our business. We pride ourselves in paying above-average salaries in our industry. We provide a minimum of eight weeks’ notice prior to implementing any significant operational change that could substantively affect employees or their elected representatives as we believe in being transparent in our dealings and involving those affected in finding a solution.
In South Africa we provide a free employee wellness service to on-site employees through clinics at each distribution centre. These clinics are operated by an occupational health practitioner with weekly doctor attendance. Support focuses on health and wellness, and liquor and substance abuse. We also partnered with a biokineticist who developed an employee-focused exercise programme to build strength, aid body conditioning and release stress.
Show more…HIV/Aids is an area of focus and includes peer education to avoid discrimination if someone is living with HIV/Aids. SPAR has an HIV/Aids policy and management framework in place. HIV-positive employees have access to voluntary counselling and support. SPAR runs HIV/Aids awareness campaigns, accompanied by regular training facilitated by dedicated peer counsellors, to address workplace challenges relating to HIV/Aids. Employees have access to an annual voluntary medical examination. Read more in the operational report: Focus on South Africa.
Poor individual retailer performance may negatively impact the group
New and existing competition may take market share
Loss of retailers and retail stores to competitors
Poor adherence to and implementation of group initiatives by retailers
Disruption of operations may occur due to labour disputes and/or industrial and mass action
Poor data quality and analysis capabilities may prevent effective business intelligence
Our response
The voluntary trading model’s success relies on robust working relationships between distribution centres and retailers. Each distribution centre has a SPAR support team consulting with and assisting retailers across their retail operations. Support includes merchandising, promotions and advertising programmes, financial controls, employee and industrial relations, new store development and refurbishing existing stores.
Show more…We undertake financial benchmarking and develop tailored service packages for retailers responding to the unique challenges of individual stores. This is particularly important in South Africa, where customer demographics, spending power and surrounding infrastructure vary greatly across regions.
Retailers have access to an online database with various store and product specifications, and best practice manuals. This is supported by the SPAR Academy of Learning that provides access to a variety of e-learning programmes shaped in response to retailers’ needs. Read more about these programmes here.
In South Africa, we focus on attracting black entrepreneurs to our pool of retailers. New retailers receive support and guidance from the group and guild to assist them in overcoming challenges associated with the initial setup phase.
Training initiatives (and e-learning, in particular) assist retailers who require access to affordable training without employees having to travel extensively to attend sessions. Retail employees can complete training when convenient and when it does not disrupt operations. Each distribution centre employs a training manager to rollout training interventions for retail.
Show more…Jumpstart |
We collaborate with Mr Price Group to address youth unemployment and provide invaluable retail work experience through the jumpstart programme. This programme links unemployed youth with entry level skills to job opportunities in retail and the broader supply chain. This creates a pool of candidates from which retailers can recruit. SPAR will increase our investment to more than R10 million over the next few years. A total of 1 030 candidates were trained during the year and 521 were placed in jobs. This is a 51% placement rate compared to 36% in 2018. |
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Good food fundi |
This is a skills programme in the areas of baking, fresh produce, home-meal replacement and butchery. |
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Retail management programme |
Our distance learning course improves skills of managers and assistant managers with credit-bearing modules. Since 2011, more than 1 745 delegates completed this course. |
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Management induction programme |
This programme assists new retailers to understand how SPAR operates. Since 2002, 1 604 delegates completed the course. |
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Fresh programme |
This programme helps effectively manage wastage and shrinkage, identify ways of improving profits, implement and understand legislative health and safety standards, and maintain the SPAR standards for a fresh department. |
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Goods receiving voucher training |
We developed an in-house goods receiving voucher training programme aimed at unemployed children of our employees. This programme provides them with a scarce retail skill. |
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Information technology systems |
This is online training provided to retailers teaching them how to manage their information technology systems. |
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E-learning |
We reached 662 stores this year, with e-learning conducted on more than 431 131 topics and 65 000 employees trained. |
South African retailers rely on SPAR to ensure that products provided by our distribution centres comply with food safety standards. Where retailers elect to source their products from smaller suppliers, they take responsibility for food safety. Since this poses a risk to SPAR and retailers alike, we work with retailers and hold them accountable to ensure appropriate controls are in place and documented. We also assist small suppliers to improve and align with programmes such as the Global Food Safety Initiative (GFSI). Ireland and Switzerland largely rely on government inspectors who enforce food safety regulations. This is enhanced by an internal SPAR audit programme.
Show more…This year, R638 came into effect in South Africa. This is an updated regulation previously known as the R962 that governs general hygiene requirements for food premises, the transport of food and related matters. The regulation is now more stringent, particularly in terms of the transport of food products which have to obtain a certificate of acceptability.
The person in charge of the distribution centre or store must be suitably qualified or should have received accredited training on the principles and practices of food safety and hygiene. There are also specific requirements for food safety training for employees handling food product. There is greater focus on record keeping, temperature controls and traceability. This resulted in significant additional costs and training for distribution centres and retailers as the person whose name is on the certificate of acceptability of each business will be held accountable for food safety. We provided extensive support from head office to ensure our retailers and facilities are compliant.
Food safety audits at distribution centres and stores are conducted through a service provider, SAI Global (QPRO). Distribution centres are subject to bi-annual audits and store audits are conducted quarterly.
SPAR ensures that microbiological sampling and testing takes place at the time of the audit. This typically includes one food sample, two hand swabs and two surface swabs. We test for bacteria such as listeria monocytogenes, staphylococcus aureus, escherichia coli, bacillus cereus, salmonella and coliform. Following the audit, the retailer or distribution centre managing director receives a report and the microanalysis of the findings. The score rating varies depending on the risk to the business and businesses are scored according to critical non-conformance, major non-conformance and partial conformance. This assists stores with prioritising corrective action.
SPAR has partnered with several service providers that provide support to our business in offering basic food safety training for food handlers as well as the person in charge of accredited training. We also offer our suppliers the preferred listing of Consumer Goods Council of South Africa selected certification bodies to assist them with the GFSI programme and acquiring certification.
Our GUEST programme helps retailers improve their customer service levels according to the following key themes:
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The programme aims to treat customers as personal guests. It involves a manual, point-of-sale material, e-learning modules, and a monitoring element. The rollout of the GUEST programme included induction sessions, videos, and awareness initiatives. The GUEST champions are responsible for implementing and driving the GUEST programme in their stores
We are fast-tracking black enterprise development among our brands. Successful black retail entrepreneurs contribute to empowerment and job creation, and are role models for young people seeking to start businesses. In 2019, SPAR placed 39 new broad-based black economic empowerment (BEE) operators in SPAR stores. This is additional to the existing 339 BEE operators. Funding remains one of the main barriers to entry. Therefore, we launched a range of initiatives to support development.
Show more…Current initiatives include:
- recruiting and identifying prospective black retailers from within our distribution centres and from various other sectors of the population. This includes graduates and unemployed people;
- placing recruits on the appropriate training programmes and in relevant partnerships until they are equipped to run their businesses sustainably;
- working with prospective funders from areas such as the Jobs Fund, the Labour Activation Programme through the Department of Labour and Sector Education and Training Authorities; and
- we are exploring joint ventures and mentorships with existing retailers to develop new operators.
Macroeconomic factors may cause a decline in business
Disruption of operations may occur due to labour disputes and/or industrial and mass action
Our response
Quality and convenience is critical to grow and maintain our market share, while ensuring that SPAR is perceived as offering customers value. The ability to stock the appropriate product mix for unique customer profiles is a key strength of the voluntary trading model as it enables retailers to customise their service offering and unlock value for consumers.
Money market counters and kiosks are part of the South African customer experience. BWG Group also offers branded ATM facilities at its stores. These provide another reason for consumers to enter the store and two additional opportunities (sending money and receiving money) for SPAR to build a long-term relationship with the consumer.
In South Africa, we remain within the industry price benchmark on the surveyed basket. We work with our retailers to offer consumers a comfortable and rewarding shopping experience focused on cleanliness, convenience and employee friendliness.
In South Africa, SPAR has an in-house customer care line that addresses complaints and queries. This number is provided on SPAR branded products. Queries relating to non-SPAR branded products are directed to the relevant suppliers.
We offer consumers value through our South African SPAR rewards programme, the SPAR Friends loyalty card in Switzerland as well as loyalty and rewards programmes in Ireland.
Marketing campaigns promote family values and a balanced lifestyle – important in maintaining the group’s positive engagements with consumers.
Our commitment to food safety and nutrition provides consumers with quality assurance and promotes healthy living. We deliver on our promise to provide high-quality, traceable products through strict adherence to product and packaging specifications. This includes providing information on sourcing and ingredients.
Show more…We contract with an external laboratory that monthly conducts random testing across our entire product range. This ensures that our products meet a strict set of composition specifications. These specifications are aligned with best practice and comply with relevant legislation. This includes meeting government’s proposed reductions in sugar and salt concentration.
We developed a nutritional strategy to support house brand innovation and raise awareness about nutrition for consumers. Through this strategy, we provide information to enable consumers to make informed choices; we leverage our house brands and our suppliers’ brands; we ensure compliance with legislation; and where possible, we collaborate with government to deliver nutritious food to the lower end of the market.
We promote responsible liquor consumption. SPAR is a member of aware.org.za, a registered non-profit, public benefit organisation.
Political instability in SPAR markets may hinder business
The inability to develop new sites may stunt growth
Disruption of operations may occur due to labour disputes and/or industrial and mass action
Transformation issues across all areas may negatively impact the business
Our response
SPAR stores play a key role in the community as the local supplier of household goods. Other brand offerings, such as TOPS at SPAR and Pharmacy at SPAR, further ensure that a local neighbourhood SPAR can become a convenient, one-stop shopping destination. Build it stores provide rural and urban communities with a one-stop home building solution.
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SPAR is founded on entrepreneurship, family values and passion. To position SPAR as a force for good in society, the group encourages retailers to support philanthropic and sponsorship initiatives at store level and be at the centre of their communities. Retailers and their employees are often from the local community, which strengthens personal ties with their target market. The voluntary trading model enables retailers to support local enterprise development and, in so doing, adds value by growing the local economy.
Our formal corporate social investment policy guides community engagement on national, distribution centre and community levels to ensure we move beyond donations to support meaningful, sustainable and far-reaching projects.
Show more…Our main focus areas are:
- training unemployed youth and supporting community transformation initiatives that play a role in combating crime. This includes a focus on skills transfer and personal development;
- feeding schemes, food production through income-generating projects and educational programmes aimed at minimising the impact of poverty on communities; and
- educating communities on health issues such as nutrition, cancer and the impact of HIV/Aids. In particular, sports and sport-related initiatives enable us to promote SPAR as a brand associated with health and well-being, personal development and community wellness.
Read more about specific initiatives in the case studies in the operational reports for South Africa, Ireland and Switzerland.