Our strategy and business model

King IV^TM disclosure and reference index for the 2019 SPAR integrated report

The table below provides a brief summary of SPAR’s application of the King IV™ principles, with references to where these are addressed in the integrated report.

Principle	Arrangements, achievements, measurements and future focus areas	Examples and references in the integrated report
1 The governing body should lead ethically and effectively	The board endeavours to meet the highest ethical standards of business practice and acknowledges that ethics are the foundation of, and reason for, corporate governance. The board is responsible for ensuring that management actively cultivates a culture of ethical conduct and establishes the values we must uphold. We value independent judgement and require that each board member prepare, participate and contribute at each meeting, in addition to informal discussions and interaction with the Chairman related to the SPAR business. The board meets formally four times year. To further improve non-executive directors’ understanding of the company’s operating divisions, a board meeting is held at least once a year at a distribution centre.	Our governance system Nomination Committee report
2 The governing body should govern the ethics of SPAR in a way that supports the establishment of an ethical culture	SPAR’s culture is informed by its values of passion, family values and entrepreneurship, in combination with the SPAR Code of Ethics. The board sets a leadership example through its adherence to the relevant guidelines, regulations and benchmarks for good corporate governance and ethics. This includes adherence to the Universal Declaration of Human Rights and the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work. The Social and Ethics Committee, which functions independently of the board, oversees SPAR’s actions and promotes a positive impact through its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public. The committee is responsible for monitoring and making recommendations in relation to the following: Social and economic development, including compliance with the United Nations Global Compact, the Organisation for Economic Co-operation and Development (OECD) recommendations on corruption, the Employment Equity Act and Broad-based Black Economic Empowerment Act. Good corporate citizenship, including the promotion of equality, prevention of unfair discrimination, reduction of corruption, contribution to community development, sponsorship, donations and charitable giving, environmental risks, health and public safety as well as reputational risks and other related risks. Consumer relationships, including advertising, public relations and compliance with Consumer Protection laws. Labour and employment, including employment relationships and contributions towards the educational development of employees. This also includes compliance with standards such as the International Labour Organisation Protocol on decent work and working conditions. Ethics management, including recognising the importance of all stakeholders while minimising the negative impacts and maximising the positive impacts of SPAR on the communities within which it operates. The committee exercises oversight by reviewing the programme to monitor compliance with the SPAR Code of Ethics annually. Employee recruitment, on-boarding and training interventions contain elements that relate to expected behaviours aligned to SPAR’s values and culture. An ethics survey was conducted by the Ethics Institute of South Africa (EthicsSA) during the 2015 financial year. Consequently, an action plan to address the shortcomings identified was discussed, and a relaunch of the Code of Ethics and Whistleblowing hotline took place in 2017. The independent whistleblowing hotline provides a mechanism for stakeholders to report any ethics breaches. These are reported to the Social and Ethics Committee and appropriate action is taken. SPAR has a customer care and complaints line with all complaints being reported to the Company Secretary, who directs these to the relevant distribution centres from where these are relayed to retailers. The distribution centres take ownership of complaints and are responsible for communication with the relevant manager of store in question to address any issues. The regional and national guild committees have the power to rescind retail membership if any ethics breaches take place. The board reviewed and approved the Group Fraud and Corruption Prevention Policy during 2016. This policy acts as a guide to ensure all instances of fraud or corruption are managed in a fair and uniform manner. The policy further assists us in creating a climate for the prevention and detection of fraud, theft, corruption or associated internal irregularity.	We are a family of entrepreneurs driven by passion Fact sheet: The SPAR Guilds Chairman’s report Our strategy and business model Our governance system Social and Ethics Committee report
3 The governing body should ensure that SPAR is and is seen to be a responsible corporate citizen	SPAR’s vision positions the group as a responsible corporate citizen: to be the first-choice brand in the communities we serve. A strong community focus is supported by the SPAR values of demonstrating passion, living our family values and encouraging entrepreneurship in our leadership as well as through our relationships. Where we are able to create authentic shared value, as per our sustainability pledge, we build our reputation as a good corporate citizen and strengthen the material relationships that enable value creation. Our supermarket strategy’s outcomes all consider our internal and external interactions with stakeholders and the environment to support our commitment to being a responsible corporate citizen. Our sustainability pledge aims to create authentic shared value through the following outcomes: Contribution to societal change Contribution to responsible living Opportunity creation Resources stewardship The report contains extensive context and commentary on SPAR’s material relationships, including interfaces with SPAR International and the guilds. SPAR’s voluntary trading model is furthermore based on relationships of trust and co-operation between SPAR and our retailers, to mutual benefit. For the voluntary trading model to operate effectively, all parties have to display responsible corporate citizenship. Corporate citizenship is one of the elements monitored by the Social and Ethics Committee and is based on SPAR’s stakeholder-inclusive approach. The committee approves and monitors corporate social development spend and impact, for example in the case of the emerging farmer programme. It also tracks progress with SPAR’s BBBEE rating.	Introducing SPAR We are a family of entrepreneurs driven by passion Fact sheet: The SPAR Guilds Fact sheet: SPAR International and the voluntary trading model Our material relationships Our strategy and business model Focus on South Africa Focus on Ireland Focus on Switzerland Our governance system Social and Ethics Committee report
4 The governing body should appreciate that SPAR’s core purpose, risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process	The board recognises that SPAR creates value on a global scale through the voluntary trading model. It creates significant value for our independent retailers, who benefit from the economies of scale gained by our buying efficiencies, and the cost savings through operational efficiency and a wide scope of products offered and distributed through our distribution centres. Our material relationships provide input into our business activities and help us mitigate the risks, including waste and resource depletion, associated with a distribution and wholesale business. The board provides overall guidance and direction for the development and annual review of the strategy, which articulates the key imperatives and enablers required to deliver on the group’s outcomes. Progress with the implementation of the strategy is measured according to financial and non-financial indicators, combined with an enterprise risk management programme which considers SPAR’s entire value chain. The board formally considered the going concern assertion of SPAR and is of the opinion that it is appropriate for the forthcoming financial year.	Fact sheet: The SPAR Guilds Fact sheet: SPAR International and the voluntary trading model Chairman’s report Our strategy and business model Our profile in South Africa Our governance system
5 The governing body should ensure that reports issued by SPAR enable stakeholders to make informed assessments of SPAR’s performance, and its short, medium and long-term prospects.	The board takes responsibility for SPAR’s financial and integrated reporting, supported by internal and external assurance mechanisms. SPAR’s integrated annual reports aim to provide our readers with a broad understanding of the group’s past performance in the context of the external environment, demonstrated through a wide range of activities, interactions and relationships. This should enable readers to gauge the prospects and future trajectory of SPAR’s value creation abilities. Our commitment to reporting according to the <IR> Framework means that we only report on what is material for SPAR to be able to create value over the short, medium and long term this is structured according to our material relationships. Our full reporting suite and archives are available on the SPAR website.	Our reporting approach
6 The governing body should serve as the focal point and custodian of corporate governance at SPAR	The board works according to an annual board plan which ensures a structured and formal approach to governance. There are at least four formal board meetings per annum and board members are provided with ample context, reports and indicators to be able to ensure that the group acts ethically, performs according to expectations, maintains the necessary controls and is being perceived as a responsible corporate citizen. Board meeting attendance is high and additional conversations between board members are encouraged for updates or when pertinent decisions require more deliberation. The board is satisfied that it has fulfilled its responsibilities according to its charter for the year. The board intends to improve the detail understanding of corporate governance structures per country where SPAR is invested and will ensure that more detail from these operations are available in the board packs.	Our governance system
7 The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively	SPAR’s core governance structure includes the board and its committees; however, the wider governance ecosystem also encompasses the guild structures and external assurance providers, who all assist the board in discharging its governance role and responsibilities. The board member profiles in the integrated report summarise the demographics, qualifications, capacity, status and memberships of each board member and indicate their respective tenures. The nomination committee amended the company’s gender diversity policy to include a policy on race diversity and renamed it the board diversity policy. The voluntary targets in terms of this policy are a minimum of three black people and two females. An internally facilitated independence assessment is conducted annually by the Nomination Committee for each non-executive director who has served on the board beyond nine years. An externally facilitated, independent assessment is conducted every three years. The SPAR policy for board appointments is implemented by the Nominations Committee, who ensures that there is an appropriate balance of diversity, skills and experience within the board’s ranks to fulfil its mandate and covers both financial and sustainability roles and responsibilities.	Chairman’s report Leadership teams Our governance system Nomination Committee report
8 The governing body should ensure that its arrangements for delegation with its own structures promote independent judgment, and assist with balance of power and the effective discharge of its duties	The board delegates specific roles and responsibilities to the Chief Executive Officer (CEO) and the board committees. Each committee has terms of reference that is reviewed annually. In addition to the four committees, there are three Executive Committees according to the three main geographies, each with very specific functions and responsibilities. Diverse backgrounds and cross-membership between committees, including guild memberships, ensure that there is appropriate balance in judgement and influence. The committee reports contain details of membership, responsibilities, advisors, attendance and key areas of focus.	Our governance system Nomination Committee report
9 The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness	The board and its committees conduct an annual self-evaluation process to measure its respective performances and the chair of the board and committees present to the board the results of those self-assessments. Evaluation criteria include the effectiveness of the board’s composition, governance processes and procedures; the effectiveness of the board’s committees in discharging their respective mandates; the effectiveness of the executive directors; and the effectiveness and contributions of each of the directors.	Our governance system Nomination Committee report
10 The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and the effective exercise of authority and responsibilities	The SPAR governance bodies are all governed by a delegation of authority framework, which is reviewed annually and sets out the matters reserved for determination by shareholders, the board, and those matters delegated to management and the Executive Committees. The board is satisfied that the delegation of authority framework contributes to role clarity and the effective exercise of authority and responsibilities. The CEO is accountable to the board for the daily management of the company and co-ordinates the implementation of board policy and strategy through the Executive Committees. The CEO’s responsibilities include, among other things, ensuring that the company conducts its affairs within the rule of law and abides by the company’s Code of Ethics, and keeping the board informed of all its major business proposals and developments by way of specific reports, within limits set by the board. The CEO’s notice period is three months and his performance is measured as per the remuneration policy. The board approved the appointment of SPAR’s CEO as the chairman of SPAR International. Succession planning is an ongoing focus area and will become important in medium-term as a number of senior management members will be reaching retirement age. SPAR’s Company Secretary is a suitably qualified and experienced employee who is able to provide the board with the requisite support for its efficient functioning and discharge of its duties. She contracts with the necessary service providers to provide specialist input or guidance on board matters, including, for example, PwC, EOH Legal Services, the Chartered Secretaries South Africa, Garlicke & Bousfield, The Ethics Institute the Institute of Directors Southern Africa, the Ethics Institute and the company’s JSE sponsors. We believe these arrangements are effective and appropriate for the efficient functioning of the board.	Our governance system Nomination Committee report
11 The governing body should govern risk in a way that supports SPAR in setting and achieving its strategic objectives	SPAR operates according to a voluntary trading model, which creates unique challenges for effective control as retailers have the freedom to operate independently under the SPAR brand. Our primary area of control extends to operations at the distribution centres, including delivery, with more limited control in the retail environment. SPAR’s retail operations team, in co-operation with the guilds, provides the necessary structures to facilitate the most appropriate risk mitigation, and financial and reputational controls for retail. In terms of distribution centres, subsidiaries and central office functions, the board relies on a range of internal and external assurance mechanisms in combination with formal policies and frameworks. External mechanisms include, for example, the auditors, sponsors and verification agencies, while internal audit and management reviews provide internal control. SPAR’s risk management ability is integral to the achievement of strategic objectives. The integrated report includes detail reporting on these risks – showing the risk ranking, mitigation actions and a link to the relevant strategic imperative. We also identify the most strategic risks per material relationship. Risk is governed and managed through the Risk Committee. The committee oversees the company’s risk management, IT and compliance processes to ensure that management identifies potential risks in these areas which may affect the company or its operations. It implements effective policies and plans to mitigate any risks, enhance the company’s ability to achieve its strategic objectives, and support the company in being ethical and a good corporate citizen.	Risk Committee report
12 The governing body should govern technology and information in a way that supports SPAR in setting and achieving its strategic objectives	Technology and information at SPAR is governed through the Risk Committee mandate, which ensures that information technology (IT) is managed as an integral and strategic part of the business. The IT strategy supports and enables the business strategy and delivers value through cost and resource management, risk management and regulatory compliance. IT serves all aspects, components and processes of SPAR in South Africa, with limited integration with the international entities. The South African IT team creates synergies between the group operations where possible and provides the teams in Ireland and Switzerland with guidance and support to ensure acceptable governance measures are in place. IT is therefore leveraged to create opportunities and to gain a competitive advantage. The board is cognisant that, as much as IT is a strategic asset within the group, it also presents the organisation with significant risks. IT is represented on the SPAR Executive Committee. This generates continuous information management dialogue, aligned to the short, medium and long-term business requirements. Demands placed on IT resources are expected to exceed the capacity of these resources for the foreseeable future. It is therefore crucial that the limited resources available are put to optimal use. To this end proposed projects will be selected and ranked by the Executive Committee according to their value to SPAR. Application maintenance is limited to necessary fixes and selected change requests for which a convincing business case exists. All projects have an owner outside the IT department, responsible for the overall project management, acceptance by the business and implementation. IT work is divided in major projects, minor projects and maintenance. Each type is dealt with differently. Major projects take more than six months to deliver, and include, for example, the SAP implementation. Major projects follow the following steps: Initiation by a user, supported by the functional executive responsible for the relevant area of business. Investigation by initiator, functional executive, business analyst and systems manager. Development of a business case by functional executive, business analyst and systems manager. Presentation to Executive Committee for approval, ranking and budget. Delivery. Implementation pre- and post-reviews with all parties concerned. Minor projects typically take less than six months to deliver. These projects follow the same steps as major projects with the exception that approval and ranking take place by the IT management team together with the functional executive. IT risks were reviewed during the year with software quality emerging as the most significant risk. Cybercrime was rated fairly low due to the systems in place to mitigate this risk. South Africa is quickly following in the footsteps of first world countries by introducing legislation governing corporate behaviour. Some of the acts that have a direct effect on IT are: The Electronic Communications and Transactions Act The Promotion of Access to Information Act The Regulation of Interception of Communications and provision of communications related information Act Payment card industry data security standard Protection of personal information act Consumer Protection Act Non-compliance with this legislation exposes SPAR to unnecessary risk. It is the specific responsibility of the Group Systems Audit & Security manager to keep abreast of legislative developments by subscribing to a suitable legal service. Any significant IT investments form part of the budget process and are submitted to the board for final approval. The board subsequently oversees the return on investment from these projects. Annual internal and external IT audits are based on the COBIT IT governance framework. Based on these audits and feedback from the Audit and Risk Committees, the board is satisfied that the SPAR Group has adequate resilience arrangements in place for disaster recovery. IT effectiveness is monitored mainly through independent audits, user surveys, uptime and support statistics and user meetings with retailers. The SAP transition to the Enterprise Management generation software based on the HANA database architecture was completed with SPAR being the 6th installation worldwide to achieve this. The second phase of the SAP programme is well underway. This phase completes the finance area with the introduction of accounts payable and accounts receivable. Roll-out of this phase will start in 2019. Preparation for the third and last phase has started. This phase will cover merchandising, replenishment and logistics. Significant investment is also being made in advanced firewall technology to keep abreast with developments in the cybercrime area.	Risk Committee report
13 The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that supports SPAR being ethical and a good corporate citizen	One Capital is SPAR’s Sponsor and advises the board, through the Company Secretary on compliance with the JSE Listings Requirements. We subscribe to LexisNexis’s online legal library and engaged with LexisNexis to provide their Lexis Assure programme, which is a notification service that informs SPAR of any regulation changes and allows SPAR to view all the relevant Acts pertaining to its business, as well as the level of associated compliance risk for each Act. SPAR has had no regulatory penalties, sanctions or fines and had not had any inspections by environmental regulators. SPAR adheres to the Code of Commercial conduct of the Industry Association for Responsible Alcohol Use and is a co-signatory to industry and government bodies on issues relating to fishery improvements. We are aligning our seafood procurement to be within the parameters of the World Wide Fund for Nature (WWF) South African Sustainable Seafood Initiative (SASSI) guidelines on how seafood should be caught and sold. SPAR’s commitment to food safety and nutrition provides consumers with quality assurance and aims to promote healthy living. We deliver on our promise to provide consumers with high-quality, traceable product through strict adherence to product and packaging specifications. This includes providing information on sourcing and ingredients. To ensure our products meet the highest health and safety standards, we contract with an external laboratory that conducts random monthly testing across our entire product range. South African retailers rely on SPAR’s supplier management and audits to ensure food safety compliance for the products provided by the distribution centres. Where retailers elect to source their own 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 that the appropriate controls are in place and documented. We also assist small suppliers to improve and align with programmes such as GFSI. An additional food safety control takes the form of quarterly inspections of all stores by a SPAR service provider. The operations in Ireland and Switzerland rely, to a larger extent, on government inspectors who enforce food safety regulations, enhanced by an internal SPAR audit programme. In terms of future reporting, SPAR is considering establishing a mechanism to alert the board of all fines. This would enable the board to monitor and track trends and potential impact.	Risk Committee report
14 The governing body should ensure that SPAR remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term	SPAR’s employees are pivotal in meeting our strategic objectives. The board is committed to paying fair, competitive and market-related remuneration to ensure that SPAR is able to attract, retain and motivate top-quality and talented employees. Shareholders voted in favour of the remuneration policy and implementation report at the AGM in February 2019. The remuneration report contains detail on SPAR’s approach to remuneration, policy and implementation.	Remuneration report
15 The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for internal decision-making and of SPAR’s external reports	The board relies on internal and external assurance providers for effective control. Financial information contained in the 2019 integrated report was independently audited by PwC and external assurance was sought on non-financial data. This includes the group’s 2019 BBBEE verification, which was evaluated independently by AQRate. The SPAR Group board applied its collective mind to the contents of the integrated report and is satisfied that it provides a fair account of the business’s performance, risks, opportunities and prospects. An integrated assurance framework is still in development.	Our reporting approach Audit Committee report
16 In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time	The board takes SPAR’s responsibility as a corporate citizen seriously, which means that we continuously evaluate the group’s impact on stakeholders and the environment. The Social and Ethics Committee is mandated to provide guidance on and oversight of SPAR’s activities regarding the environment, consumers, employees, communities and other stakeholders, and to monitor the company’s sustainability and governance performance in this regard. The committee also ensures that these activities take place in a compliant and ethical manner that contributes to the welfare of the business and our stakeholders. To further expand on the group’s legitimacy, the SPAR guilds also have Social and Ethics Committees. Our sustainability pledge is to create authentic shared value through the following outcomes: contribution to societal change; contribution to responsible living; opportunity creation; and resources stewardship. Our commitment to creating authentic shared value is inherently linked to our values.	Introducing SPAR Fact sheet: The SPAR Guilds Fact sheet: SPAR International and the voluntary trading model Chairman’s report Our material relationships Our strategy and business model Focus on South Africa Focus on Ireland Focus on Switzerland Social and Ethics Committee report

Background and strategy development process summary

The SPAR supermarket strategy for South Africa was developed and approved by the board in 2018. This followed an extensive and inclusive stakeholder process that considered major shifts for SPAR over the past few years:

We acquired businesses in different territories
We entered new categories, such as pharmaceuticals
We had leadership changes
Our markets evolved through heightened competition, economic and political challenges as well as consumer shifts, driven to a large extent by technological advancements

The SPAR supermarket strategy directs our focus and helps us appropriately respond to a dynamic trading environment. We describe these changing environments in the three operational reports for South Africa, Ireland and Switzerland. Through our strategy we are living our purpose: to inspire people to do and be more.

Our South African supermarket strategy at a glance

By living our purpose, we aim to achieve three key overarching outcomes that define how we create value.

Outcome

SPAR stakeholders benefit from being part of the family
Interests of stakeholders are well balanced to ensure the entire system is sustainable in the long term
“Value” refers the broad range of benefits we deliver to stakeholders, inter alia, financial returns, creation of opportunities, empowerment, etc.

The SPAR brand has a strong emotional connection with stakeholders
We are respected for the difference we make in South Africa and our communities
We are respected for our strong ethics
Stakeholders want to be and enjoy being associated with SPAR

Southern African consumers have more access to affordable food
South Africans’ nutritional needs are met as a result of SPAR’s work in this space
We made a positive impact on the health of southern African consumers, especially in areas related to healthier eating habits

Creating a culture of implementation

The effective implementation of the SPAR supermarket strategy requires a different culture and mindset for employees and retailers.

Work towards outcomes, not milestones
Agile – think and act quick, fail fast, course correct
Integrate risk thinking into ways of working
Systemic thinking – how the system works, how my actions influence others and unintended consequences
Inclusive communication is critical – particularly between focus areas

What will we do differently from what we are doing based on these recommendations?
Are the recommendations in line with achieving SPAR’s overarching purpose and strategic outcomes?
How do our recommendations align with our values?
How does the proposal work and engage with other focus areas?

From profit to purpose
From hierarchies to networks
From controlling to empowering
From planning to experimentation
From privacy to transparency

Governance and oversight of the SPAR supermarket strategy

In the past year, we appointed a team dedicated to each focus area. Team leaders are members of executive management, supported by team members who are qualified to drive the defined outcomes according to set timelines. Teams are diverse and cross-functional, combining employees, retailers and wholesale representatives. With defined outcomes to deliver, teams have the freedom to chart their paths – there are no prescribed processes or plans to follow.

A Steering Committee serves to co-ordinate activities and interdependencies between focus teams. The Steering Committee oversees activities, breaks down barriers or resolves issues, and takes accountability for resource allocation.

Progress is tracked through executive and SPAR Guild directors’ meetings where the strategy facilitation team reports back. The strategy facilitation team has monthly meetings with focus team leaders to provide support and monitor communication and change management initiatives.

Progress on strategy implementation is on the agenda of every board meeting. We are exploring software options to provide a dashboard, with key performance indicators for each focus area in development.

Risks to the successful implementation of the strategy include:

Resources: team members work on focus areas in addition to their daily jobs and responsibilities
Dealing with new and unknown focus areas: change management interventions help employees understand the need for change
Amount of time: slow progress in some areas due to capacity constraints and lack of data/research
Accepting failure and trying again: we need to build tenacity based on commitment
Leadership buy in: visible role models play in important part in embedding the commitment to and understanding of outcomes
High level of buy-in and excitement: people want to get involved
Time and task management: employees need support in knowing where to start, when to wait and when to take risks

“A key factor for success was the inclusion of retailers to assist the process from a ground level point of view. The main highlight through these discussions is SPAR not only seeing the retailer as their customer but the end-consumer. That is an absolute win whereby we are all inclusive in satisfying customer needs. Understanding of our consumers was quite important. Even though we may think we do, this exercise highlighted that there is so much work to be done. The way we allocate our advertising spend is critical.” – Roy Sheodin, SPAR retailer

Strategic focus area progress for 2019

We are in the developmental phase of our strategy: allocating resources, defining measurements and starting to report. This is an interactive process to refine our focus areas and determine potential impact. This year, our focus area teams put the basics in place.

In this focus area, we are working on:

defining and implementing our talent management framework;
strengthening and enhancing our culture; and
defining the SPAR organisation of the future.

In this area, we are working on:

developing an efficient and resilient supply chain;
enhancing and developing excellence in our fresh offerings;
promoting nutritious food offerings; and
deepening our interactions with the informal food economy.

We are working on increasing the diversity of:

suppliers;
employees; and
retailers.

We are working to:

review our brand essence and architecture;
update our house brand strategy in line with our architecture;
review our marketing, branding and execution; and
update our SPAR rewards strategy.

We are working to:

develop solutions to address key challenges in the model;
review our service offerings to retailers;
modernise and drive the “rules of the game”; and
embed the capability to run profitable retail stores.

We are working to:

clearly define consumer segmentation for SPAR;
review and align offerings to consumers by segment; and
drive innovation and new business in line with consumer insights.

Our strategies in other territories

An overarching group strategy will be developed, serving to align strategies in different territories.

Six strategic plans for Ireland

BWG works according to a strategic plan 2016 to 2021 aimed at shareholder value creation through six specific plans as follows:

1. Distribution		Specific imperatives include a strategic review of the BWG supply chain for channels to stress test distribution and minimise costs. We developed optimisation plans for the distribution centres to assess capacity, productivity and service levels to improve capacity management and reduce working capital. A transport optimisation plan was developed to refine asset use and reduce costs.
2. Information technology		The information technology plan focuses on more efficient and lower-cost infrastructure upgrades, standardisation and redesign. We developed an e-commerce strategy to address online, mobile and integrated solutions. Further imperatives include software consolidation, social media and business intelligence capabilities.
3. Acquisitions		The acquisition plan is based on growth aspirations, shareholder support and management expertise. Targets were identified and explored to retain strategic retail business. A further imperative is retaining and developing strategic categories.
4. People		The top imperative for the people plan is to refine the management structure based on succession planning and talent requirements. Further focus areas include the e-learning academy, strengthening the company culture through feedback programmes and training to ensure greater productivity and efficiency.
5. Property		The property plan is a long-term imperative aimed at enhancing profitability and reducing liabilities. It considers asset valuations, disposals and the development of an intellectual property management mandate for the business.
6. Retail		Our focus is on developing a multi-brand strategy for different store formats and to drive SPAR as the leader in the convenience market over the long term. The plan also addresses the EUROSPAR brand strategy imperative and considers innovation to grow margins.

Read about activities supporting these plans for 2019 in the operational report: Focus on Ireland.

Strategic outcomes for Switzerland

Adopted in February 2017, SPAR Switzerland’s strategy features the following elements:

Purpose		Enable retailers to profitably meet their customers’ individual needs
Vision		Convenience brand of choice for the customers we serve
Values		Trust, passion and entrepreneurship

The following action plans shape SPAR Switzerland’s operations towards six outcomes:

1. The best employees		We aim to motivate and empower employees through our culture, values and processes. We focus on improving communication, providing competitive remuneration, talent management, training and apprenticeships.
2. World-class supply chain		We focus on supply chain optimisation through supplier engagement and relationships to reduce costs and increase quality. This includes logistics efficiencies and productivity improvements.
3. Customised range		We focus on category management through an assortment geared toward customers. This also informs new product development.
4. Competitive pricing		We balance pricing with retailer profitability through marketing and promotions, and by optimising our store portfolio.
5. Loved/trusted/believable brand		We focus on targeted sales and marketing activities, including our rewards programme.
6. New business growth		We focus on expanding our footprint through new sites and stores, and by using technology.

Read about activities supporting these plans for 2019 in the operational report: Focus on Switzerland.

The link between strategy, governance and risk

The SPAR board believes there is an inextricable link between strategy, risk, sustainability and performance management, effectively measured and controlled through the enterprise risk management process. Therefore, the successful implementation of the strategy relies on the effective mitigation of strategic risks.

The board, supported by the Risk Committee, implements effective policies and plans to mitigate these risks and to support the company in being ethical and a good corporate citizen.

In developing the strategy and overseeing risk management, the board provides overall guidance and direction, including approving and monitoring progress. The South African executive team and management provide structure for both processes and input into risk and strategy discussions by considering past performance and a changing operating landscape. Progress against the strategic focus areas and an updated risk register form part of the quarterly reports to the board and relevant committees.

The board’s role in considering and approving strategy includes, inter alia, ethical leadership which evaluates the trade-offs between different stakeholders ensuring progress is measured and monitored. To enable the latter, the board approves policies, frameworks and the plans that drive budget allocation.

The risks outlined below were identified and ranked as the top 12 risks most likely to impact the business. The risk register links key risks to strategic imperatives and identifies key risk indicators tracked to determine likelihood and impact. These risks are monitored and managed at board level. To strengthen accountability and mitigate the key risks identified, detailed action plans with clearly defined roles and timelines were developed.

The summary below tracks strategic risks, identifies mitigation plans and show the trend movement:

Increased movement in rank with comparative ranking in 2018

Decreased movement in rank with comparative ranking in 2018

Unchanged movement in rank with comparative ranking in 2018

Rank	Risk title	Description	Mitigating plans
(8)	Major customer groups may negatively influence the sustainability of the business	Large groups of retailers may have a proportionally large influence on the profitability, reputation, relationships and standards of specific distribution centres. This might lead to the potential loss of a significant percentage of business.	We identified key risks per major customer group and documented an action plan to address these.
(1)	Macroeconomic factors may cause a decline in business	Factors include global and macroeconomic conditions such as inflation, currency depreciation and unemployment.	Medium to long-term mitigation strategies include forward cover and stockpiling fuel. We track and report trends according to indicators and set thresholds, for example, for the Rand exchange rate and the oil price.
	Poor individual retailer performance may negatively impact the group	This can have a wide spectrum of impacts, including reputational and financial through subpar stores, price perceptions, store viability, group profitability and efficiency. Further drivers are increasing working capital constraints at retailers because of poor financial management by individual retailers. Poor performance includes retailers not being meaningfully or sustainably involved in the communities they serve, thereby not living the SPAR vision.	We drive increased financial disclosure and benchmarking for retailers while offering training and support. We actively manage the list of poor-performing retailers per region and identify appropriate and specific action plans to address performance. We have increased the audit of core retailer (business) processes.
(2)	Political instability in SPAR markets may hinder business	National or international political events can cause fundamental shifts in the country’s economy.	We receive regular political insights from knowledgeable commentators who assist in creating scenarios to determine the potential impact on our future business.
(4)	New and existing competition may take market share	This aggressive competition includes foreign or local new entrants, with expanded domestic competition by current retailers – for example, competing on range, price and hygiene factors.	We developed plans for strategic stores and identified market share gaps. We developed a clear emerging market strategy for each region.
(5)	Loss of retailers and retail stores to competitors	Competitors target SPAR retailers to buy stores with unrealistic or extravagant offers.	We identified unique actions to improve our relationship with each retailer, based on an analysis of each retailer’s specialist support needs. Vulnerable stores are indexed and tracked.
(6)	Poor adherence to and implementation of group initiatives by retailers	Resistance and lack of buy in and discipline by some retailers may result in an inability to market our offerings on a national basis, resulting in financial and reputational damage.	We conduct and document robust pilots for new concepts as references for the rollout to retailers. Regional committees list mandatory initiatives, conduct audits and report on retail compliance with documented remedial actions for non-compliant retailers.
(7)	The inability to develop new sites may stunt growth	Acquiring new sites is fundamental to our growth strategy. Barriers include guild approvals, objections by other retailers and other competitors owning property.	To drive new business, we identified new business champions per region with action plans. We developed a group developer engagement and funding strategy. We also identified retailers per region with the desire and capacity to own multiple stores.
NEW	Inability to attract new retailers stunts growth	We face issues such as lack of attractiveness to entrepeneurs and potential black retailers and desirability of the retail model.	We have identified strategies and plans to attract new retailers, in particular black retailers.
(11)	The financial model may fail to ensure retailer profitability, thereby jeopardising SPAR’s sustainability	Retailers may be unable to make sustainable and acceptable profits, which threatens the wholesale model. Retail margins are under pressure.	We identified key actions to reduce costs or enhance revenue within retail in the regions. We determine the true cost and profitability for SPAR and retailers across the value chain for a selected basket of goods. We identified key drivers impacting the wholesale/retail model, including the impact of cross-subsidisation and shared costing for retailers and SPAR.
(9)	Disruption of operations may occur due to labour disputes and/or industrial and mass action	Labour unrest may be caused by a spillover from related industries such as transport, or the unsatisfactory resolution of central bargaining and outsourcing issues or retail strikes with empathy from SPAR employees.	We have identified unique actions to improve relationships with unions and employees, including improving the capacity of shop stewards. We have strike contingency plans detailing responsibilities and expectations. We conduct an annual comprehensive climate survey at sites.
(12)	Lack of transformation at leadership level including retail creates a liability for SPAR credibility, brand and reputation	Transformation is slow, especially in senior leadership. Lack of black retail leadership is also an issue.	We updated our transformation plan based on the new broad-based black economic empowerment codes and are executing according to a carefully thought out strategy. We educate retailers on new requirements regarding transformation and assist them in improving their BBBEE ratings.

We remunerate for success

SPAR’s employees are pivotal in achieving our three strategic outcomes, for living our purpose and managing our risks. Their actions and how they work determine our success.

SPAR is committed to paying fair, competitive and market-related remuneration to ensure that we attract and retain top-quality and talented employees. Our remuneration policy guides the board to acknowledge the contribution of individual employees, based on performance reviews considering key indicators, and reward them for achieving targets.

We pledge to create shared value

SPAR creates value on a global scale through our voluntary trading model and convenient delivery of fresh food and groceries to stores located where people live.

We rely on relationships to create value. We explain our material relationships here. They are essential for our business activities and help us mitigate risks, including wastage and resource depletion, associated with distribution and wholesale businesses.

We create value for stakeholders. For example, independent retailers benefit from the economies of scale gained by our buying efficiencies. These include cost and resource savings through operational efficiency and a wide scope of products offered and distributed through our distribution centres.

Retailers further benefit from our merchandising expertise, support services and benchmarking, which enable them to offer a wide range of products at competitive prices in the format or scale that they prefer. Voluntary trading further equips retailers with the ability to customise their product and service offering to be responsive to their local, niche consumer segment’s needs and expectations. This unlocks value for retailers and consumers.

Our sustainability pledge is to create authentic shared value though the following outcomes

SPAR’s business model is based on interactions between our business, our customers and our communities. As we are mainly a wholesale and distribution operation, our suppliers form an essential part of the business model, and our supply chain constitutes the core of what we manage.

Find key facts about our distribution centres here.

OUR BUSINESS ACTIVITIES

OUTPUT OF OUR BUSINESS

Our main output is a product range that covers the food and grocery shopping needs of all income groups in all territories. Store mixes are determined by the retailer’s positioning, changing consumer buying trends and seasonal impacts. Sales are supported by promotions, store concepts such as Beantree, home-meal replacement options and innovative and affordable SPAR house brands.

Our business depends on specialist operational expertise in managing a wholesale supply chain.

Waste takes the form of unsold goods, packaging and inefficiencies. All distribution centres have comprehensive recycling programmes for plastic and cardboard. This includes waste generated at the distribution centres and by participating retail stores.

GOVERNANCE AND OVERSIGHT

Our board approves the strategy and monitors implementation through five committees:

Read more about the ways in which the board supports value creation here.

REVENUE DRIVERS

Revenue depends on the number of stores in operation, the percentage of goods ordered through our distribution centres and the ability of retailers to drive sales growth per store. 67.9% of revenue is contributed by the South African business.

COST DRIVERS

Product cost is driven by the cost of commodities and other merchandise which we source from suppliers. Other costs include leases, fuel and transport as well as employee remuneration and finance cost.

MEASURING WHAT WE MANAGE

In addition to financial key performance indicators, we typically track the following operational indicators on a monthly basis:

Contribution of fresh produce to turnover
Increased stock levels
Reduced input costs
Reduced carbon footprint
Tonnes of recycled plastic and cardboard
Food price inflation
Customer survey responses
Wholesale profit margin
Retail profit margin
House brands as a percentage of total sales
Loyalty programme uptake
Health and safety incidents
New retailers and stores
Existing store growth
Existing store revamps and refurbishments

Our resources

Find our fact sheet here.

The resources we use to create value

We strive to use our resources responsibly. Our purpose and sustainability pledge direct us to take accountability for all six capitals of value creation and make future-orientated business decisions that consider financial, human, intellectual, social and relationship, manufactured and natural capitals. Evidence of these decisions is described in the operational reports for South Africa, Ireland and Switzerland.

The summary below provides brief examples of our interaction with and reliance on combinations of capitals to run our business. In addition, we depend on relationships with specific stakeholders to ensure the future availability of the capitals, and to work with us to mitigate negative impacts. In some cases, we own the capitals, such as our brands or buildings, whereas others are contracted or indirectly funded, such as employees or infrastructure.

Examples of the capitals used in our business activities	The capitals we use and transform	Relationships with key stakeholders enabling the use and transformation of the capitals
We source products either locally or internationally, depending on availability and cost. These products are converted, processed, packaged and transported to our distribution centres. We rely on factories, plants and road infrastructure. Once products enter our distribution centres, they are handled according to SPAR’s inventory, quality control and order processes.	Natural, manufactured and intellectual	Suppliers Government Employees
Our range of SPAR house brand products is developed and packaged for SPAR according to specific requirements. As these products carry our brand, they are subject to high standards of quality, nutrition, health and safety. Other products are branded by their producers and sold under third-party brands in our stores. We follow a stringent supplier selection process to ensure the quality, safety and secure supply of products.	Manufactured, intellectual, and social and relationship	Suppliers Employees Customers Consumers
Employees of our distribution centres handle, sort and move inventory according to orders and deliveries. Their activities are supported by employees dedicated to the financial, marketing, retailer services, information technology and human resources aspects of the business.	Human and intellectual	Employees
Our fleet of trucks and those in our network of suppliers form a pool to optimise delivery through drop shipments, shared loads and backhauling, thereby minimising cost and environmental impact.	Manufactured and environmental	Suppliers Customers Employees
We depend on financial capital in almost all business activities as we require funds to procure goods and services, pay salaries and tax, develop new products, invest in facilities or operations, equipment and repairs, and pay our funders and shareholders. Financial capital is used to make acquisitions, expand our footprint and deliver long-term growth.	Financial and intellectual	Employees Suppliers Customers Consumers Shareholders
We form partnerships to increase the impact of our resource-saving and regeneration initiatives. We endeavour to change manufacturing, packaging and consumption behaviour related to using plastics, other packaging and water. We continuously measure progress on reducing our environmental footprint.	Social and relationship, and intellectual	Suppliers Employees Communities

We can adapt to changes in the availability, quality or nature of the six capitals through our integrated approach to strategy, governance and risk management.

Creating value through our business activities

Our business activities are similar to other companies managing wholesale and distribution businesses. What differentiates SPAR is the dynamics of the voluntary trading model, which extends our scope in terms of retail support and marketing activities.

Our business activities are interdependent and interconnected: as a system, they ensure good supply chain management which streamlines processes and results in resource savings. Read more about these activities and outputs in the operational reports for South Africa, Ireland and Switzerland.

Our business activities at a glance

PROCUREMENT		Our distribution centres source goods from suppliers and sell them to retailers at a margin. Our bulk procurement creates economies of scale. Fixed costs are shared over vast volumes, thereby reducing costs per unit. Joint business planning with key suppliers targets supply chain efficiencies, including using resources responsibly. Our support of local suppliers benefits small businesses, for example, through the rural hubs in South Africa.
WAREHOUSING		We operate warehouses across our distribution centres and satellite facilities, and across various temperature disciplines. We apply advanced technology to optimise the complex process of storing vast quantities of goods for delivery. Goods are received from suppliers and unpacked into pick slots. Retailers’ orders are processed electronically and sorted for transportation.
DISTRIBUTION		Increasing fuel prices emphasise the importance of route management systems, truck specifications, turnaround times and driver efficiency. There is a dual strategic drive to increase our bottom line and decrease our carbon footprint. We use biodiesel as fuel, co-develop new truck refrigeration options and continuously explore ways to optimise distribution. Joint business planning with suppliers and other value chain partners streamlines processes, including backhauling and packing techniques.
RETAILER SUPPORT AND MARKETING		We share the benefits inherent in the voluntary trading model with retailers. We encourage entrepreneurial flair within SPAR guidelines to ensure consistency. We provide a range of retail support services: Store refurbishment and design assistance Merchandising best practice Public relations assistance The SPAR development fund for retailers

Our strategic outcomes and trade-offs

We identified three main outcomes as part of the strategy development process. These outcomes consider internal or external impacts to SPAR and its material stakeholders throughout the value chain.

The outcomes are subject to deliberate trade-offs where one stakeholder’s interests are weighed against another over a given period. The voluntary trading model, for example, allows retailers to procure products from alternative suppliers or to compare supplier prices against those offered by the SPAR distribution centres. For SPAR there is a trade-off in margin to be weighed against the risk to the brand associated with products not necessarily subject to the same safety and compliance requirements as those offered by SPAR. SPAR often carries reputational risk to an extent greater than that of an individual store owner. The need for consistency in terms of the SPAR brand and stores versus the free choice of an independent owner remains a core trade-off to be managed in the value creation process.

King IVTM disclosure and reference index for the 2019 SPAR integrated report

Our strategy and business model

Background and strategy development process summary

Our South African supermarket strategy at a glance

Outcome

Sustainable stakeholder value

Loved and respected as a brand

Nutritious and affordable food

Creating a culture of implementation

Governance and oversight of the SPAR supermarket strategy

Strategic focus area progress for 2019

Grow and inspire our people

Provide nutritious and affordable food

Embed diversity and transformation

Build our brands in hearts and minds

Drive our future voluntary trading model

Put consumers at our heart

Our strategies in other territories

Six strategic plans for Ireland

Strategic outcomes for Switzerland

The link between strategy, governance and risk

We remunerate for success

We pledge to create shared value

Our sustainability pledge is to create authentic shared value though the following outcomes

OUR BUSINESS ACTIVITIES

OUTPUT OF OUR BUSINESS

GOVERNANCE AND OVERSIGHT

REVENUE DRIVERS

COST DRIVERS

MEASURING WHAT WE MANAGE

Our resources

The resources we use to create value

Creating value through our business activities

Our business activities at a glance

Our strategic outcomes and trade-offs

King IV^TM disclosure and reference index for the 2019 SPAR integrated report