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OUR NEW SUPERMARKET STRATEGY FOR SOUTHAFRICA

The 2018 SPAR strategy development processstarted with the recognition that we neededto develop a strategy that focuses on SPARsupermarkets in South Africa.Since our previous in-depth strategy development process in 2012, SPAR has transformed in thefollowing manner:

We acquired new businesses in different territoriesWe entered new categories, such as pharmaceuticalsWe had leadership changesOur markets evolved through heightened competition, economic and political challenges as well asconsumer shifts – driven to a large extent by technological advancements.

Although the board reviewed the strategy annually since 2012, there was a need for a morecomprehensive reflection, focusing on driving the retail and wholesale aspects of our business inSouth Africa. It was also key to involve retailers, particularly the national guild, in the strategydevelopment process.

The strategy review process was underpinned by extensive background research that helped identifykey trends, opportunities and challenges, and gave insight into where SPAR could make a realdifference in the country.

Key retail trends that we considered:

Buy local Global expansion War on packaging

Convenience Integrated digitalsolutions ‘Shrink-flation’

Health and well-being Deep discounting Increased security

War on food waste

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These trends are amplified by growth in the informal food economy, the consolidation of formal foodsystem players and the pressure on primary producers – the latter at risk to scale effectively for futuredemand while complying with increasing legal and audit requirements.

The strategy process was further guided by the Sustainable Development Goals (SDGs) which assistedin defining primary themes for SPAR around equality, poverty reduction, human settlement, food andnutrition, sustainable growth and quality education. Read more about how we align the SPAR valueswith the SDGs here.

As input into the strategy process, we initiated a stakeholder engagement project that encompassedfocused interviews, workshops and team discussion, as well as trade intelligence. Our maininteractions were with retailers, the guilds, employees, suppliers and consumers.

First choice brand in the communities we serveThere was collective agreement that the SPAR vision should remain the same: it continues to highlightour focus on understanding our consumer and recognises that different communities need differentthings. It also implies a sense of belonging. The vision further confirms that we have a bigger role toplay in communities than just selling and making money – it emphasises our culture of caring.

The strategy development process culminated in a board-approved supermarket strategy for SouthAfrica – not a radical change from our previous strategy, but a refinement with a shift in emphasistowards our consumers.

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THE SUPERMARKET STRATEGY AT A GLANCE

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OUR SHORT TERM STRATEGIC PRIORITIESThrough the strategy development process, we identified the following key priorities for the next 12months:

Understand and segment our consumers and retailers based on their various needsReview our offerings to both consumers and retailers by segmentCapture informal market opportunitiesUpdate voluntary trading model standards and rules to address key challenges that threatenthe long-term sustainability of the modelActively drive our desired cultureDesign the organisation of the future and commence implementationDrive supply chain optimisation and efficienciesDrive cold chain management at distribution centre and retail level

Detailed action plans are being developed for each strategic focus area with appropriate keyperformance indicators and phasing.

OUR STRATEGIES IN OTHER TERRITORIESAn overarching group strategy will be developed as a next phase, serving to align the strategies in thedifferent territories. Strategies for each format, such as Build it, Pharmacy at SPAR and TOPS at SPAR,will also be developed.

SIX STRATEGIC PLANS FOR IRELANDCurrently, BWG works according to a strategic plan 2016 to 2021 aimed at shareholder value creationthrough six specific plans:

1. Distribution Specific imperatives up to now included a strategic review of theBWG supply chain for all channels to stress test distribution andminimise costs. This was followed by optimisation plans for thedistribution centres to assess capacity, productivity, and servicelevels to improve capacity management and reduce working capital.In 2018, a transport optimisation plan was developed to refine assetuse and reduce costs.

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2. Information technology(IT)

The IT plan focuses on more efficient and lower-cost infrastructureupgrades, standardisation and redesign. We developed an e-commerce strategy to address online, mobile and integratedsolutions. Further imperatives include software consolidation, socialmedia, and business intelligence capabilities.

3. Acquisitions The acquisition plan is based on growth aspirations, shareholdersupport and management expertise. Targets were identified andexplored while ensuring retention of strategic retail business. Afurther imperative is the retention and development of strategiccategories.

4. People The top imperative for the people plan is to refine the managementstructure based on the need for succession planning and talentrequirements. Further focus areas include the e-learning academy,strengthening the company culture through feedback programmesand training, while ensuring greater productivity and efficiency.

5. Property The property plan is a long-term imperative aimed at enhancingprofitability and reducing liabilities. It considers asset valuations,disposals, and the development of an intellectual propertymanagement mandate for the business.

6. Retail Our focus is on developing a multi-brand strategy for the differentstore formats and to drive SPAR as the leader in the conveniencemarket over the long term. The plan also addresses the EUROSPARbrand strategy imperative and considers innovation to grow margins.

Read about activities supporting these plans for 2018 in the operational report: Focus on Ireland.

STRATEGIC OUTCOMES FOR SWITZERLANDSPAR Switzerland adopted a new strategy in February 2017 with the following elements:

Purpose: Enable retailers to profitably meet the individual needs of theircustomers

Vision: Convenience brand of choice for the customers we serve

Values: Trust, passion and entrepreneurship

The following actions plans shape SPAR Switzerland’s operations toward six outcomes:

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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, trainingand apprenticeships.

2. World-class supply chain We focus on supply chain optimisation through supplier engagementand relationships to reduce costs and increase quality. This includeslogistics efficiencies and productivity improvements.

3. Customised range We focus on category management through an assortment gearedtoward customers. This also informs new product development.

4. Competitive pricing We balance pricing with retailer profitability through marketing andpromotions, and by optimising our store portfolio.

5. Loved/trusted/believablebrand

We focus on targeted sales and marketing activities, including ourrewards 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 2018 in the operational report: Focus on Switzerland.

THE LINK BETWEEN STRATEGY, GOVERNANCE AND RISKThe SPAR board believes there is an inextricable link between strategy, risk, sustainability, andperformance management, which is effectively measured and controlled through the enterprise andrisk management (ERM) process. The successful implementation of the strategy therefore relies oneffective mitigation of strategic risks.

The board, supported by the Risk Committee, implements effective policies and plans to mitigatethese 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 anddirection, including the relevant approvals and monitoring. The South African executive team andmanagement provide structure for both processes and input into the discussions by considering pastperformance and a changing operating landscape. Progress against the strategic focus areas and anupdated risk register forms part of the quarterly reporting to the board and the relevant committees.

The board’s role in considering and approving strategy includes ethical leadership, which evaluates,for example, the trade-offs between different stakeholders which ensures progress is measured andmonitored. To enable the latter, the board approves policies, frameworks and the plans that drivebudget allocation.

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

The summary below tracks strategic risks, identifies mitigation plans and show the trend movementagainst a 2016 baseline:

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High inherent risk

Medium inherent risk

Unchanged movement in rank compared to 2016

RISK TITLE DESCRIPTION MITIGATING PLANS

Macroeconomic factors maycause a decline in business

Factors include global andmacro-economic conditionssuch as inflation, currencydepreciation andunemployment.

Medium- to long-termmitigation strategies includeforward cover and stockpilingfuel. We track and report trendsaccording to indicators and setthresholds, for example, for theRand exchange rate and the oilprice.

Political instability in SPARmarkets may hinder business

National or internationalpolitical events can causefundamental shifts in theeconomic system of thecountry.

We receive regular politicalinsights from knowledgeablecommentators that assist increating scenarios to determinethe potential impact on ourfuture business.

Poor individual retailerperformance may negativelyimpact the group

This can have a wide spectrumof impacts, includingreputational and financialthrough subpar stores, priceperceptions, store viability,group profitability andefficiency. Further drivers areincreasing working capitalconstraints at retail because ofpoor financial management byindividual retailers. Poorperformance includes retailersnot involved in thecommunities they serve in ameaningful and sustainableway, thereby not living theSPAR vision.

We drive increased financialdisclosure and benchmarkingfor retailers while offeringtraining and support.We actively manage the list ofpoor-performing retailers perregion and identify appropriateand specific action plans toaddress performance. We havealso increased the audit of coreretailer (business) processes.

New and existing competitionmay take market share

This takes the form ofaggressive competitionincluding foreign or local newentrants, with expandeddomestic competition bycurrent retailers – for example,competing on range, price, andhygiene factors.

We developed plans for allstrategic stores and identifiedmarket share gaps.We have also developed a clearemerging market strategy foreach region.

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Loss of retailers and retailstores to competitors

Competitors target SPARretailers to buy stores, evenwith unrealistic or extravagantoffers.

We identified unique actions toimprove our relationship witheach retailer, based on ananalysis of each retailer’sspecialist support needs.Vulnerable stores are indexedand tracked.

Poor adherence to andimplementation of groupinitiatives by retailers

Resistance and lack of buy-inand discipline by some retailersmay result in an inability tomarket our offerings on anational basis, resulting infinancial and reputationaldamage.

We conduct and documentrobust pilots for all newconcepts to act as reference inthe rollout to retailers. Regionalcommittees list mandatoryinitiatives, conduct audits, andreport on retail compliance withdocumented remedial actionsfor non-compliant retailers.

The inability to develop newsites may stunt growth

Acquiring new sites isfundamental to our growthstrategy. Barriers include guildapprovals, objections by otherretailers, and othermajors/competitors owningproperty.

To drive new business, weidentified new businesschampions per region withaction plans. We developed agroup developer engagementand funding strategy. We alsoidentified retailers per regionwho have the desire andcapacity to own multiple stores.

Major customer groups maynegatively influence thesustainability of the business

Large groups may have aproportionally large influenceon the profitability, reputation,relationships, and standards ofspecific distribution centres.This might lead to the potentialloss of a significant percentageof business.

We identified key risks permajor customer group anddocumented an action plan toaddress these.

Disruption of operations mayoccur due to labour disputesand/or industrial and massaction

Labour unrest may be causedby a spill over from relatedindustries such as transport, orthe unsatisfactory resolution ofcentral bargaining andoutsourcing issues or retailstrikes with empathy fromSPAR employees.

We have identified uniqueactions to improve relationshipswith unions and employees,including improving thecapacity of shop stewards. Wehave strike contingency plansdetailing responsibilities andexpectations. We conduct anannual comprehensive climatesurvey at all sites.

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Poor data quality and analysiscapabilities may preventeffective business intelligence

The lack of quality data acrossthe group may limitopportunities to optimisebusiness processes, the supplychain and forecasting. It mayresult in an inability toaccommodate businessrequirements. This isdetrimental to performancemanagement.

We conducted an informationneeds analysis for each functionand the development ofbusiness intelligencecomponents was prioritised. Wecontinue to drive, throughtraining and other means, theproper use of systems at retailand corporate systems. Weimplemented of a groupwidedata governance programmethat introduces governedmaster data and data qualitymanagement.

The financial model may fail toensure retailer profitability,thereby jeopardising SPAR’ssustainability

Retailers may not able to makesustainable and acceptableprofits, which threatens thewholesale model. Retailmargins are under pressure.

We identified key actions toreduce cost or enhance revenuewithin retail in the regions. Wedetermine the true cost andprofitability for SPAR andretailers across the value chainfor a selected basket of goods.We identified key driversimpacting the wholesale/retailmodel, including the impact ofcross-subsidisation and sharedcosting for retailers and SPAR.

Transformation issues across allareas may impact the businessnegatively

Multiple issues aroundtransformation regardingemployees, management,ownership, supply chain,enterprise development andretailers, and training anddevelopment must bemonitored. There arechallenges in hiring for skill vsimmediate BBBEErequirements.

We updated our transformationplan based on the new BBBEECodes and are executingaccordingly. We educateretailers on new requirements,such as liquor licensing.

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OUR VALUE CREATION CONTRIBUTION

SPAR creates value on a global scale throughour voluntary trading model and convenientdelivery of fresh food and groceries to storeslocated where people live.The group creates significant value for our independent retailers, who benefit from the economies of scalegained by our buying efficiencies, and the cost savings through operational efficiency and a wide scope ofproducts offered and distributed through our distribution centres.

Our business model relies on relationships in all aspects of value creation. We explain our materialrelationships here, as these provide input into our business activities and help us mitigate the risks,including wastage and resource depletion, associated with distribution and wholesale businesses.

Retailers further benefit from the value created by the merchandising expertise, support services andbenchmarking offered by SPAR, which enable them to offer a range of products at competitive prices.Voluntary trading further equips retailers with the ability to customise their product and service offering tobe responsive to their local, niche consumer segment’s needs and expectations. This unlocks value forretailers and consumers.

We strive to manage our use of resources and the six capitals of value creation through environmentallyand socially sustainable business practices. Read more about these commitments and our progressagainst targets in the operational reports.

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

Our commitment to creating authentic shared value is inherently linked to our values and our support ofthe 17 SDGs in the following ways:

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INPUTS REQUIRED TO CREATE VALUEWe source products according to the requirements of our retailers who, in turn, shape their offeringaccording to each store format and their consumer community needs. These products are sourced locallyor imported, and consist of fresh and packaged foods, beverages, groceries, building materials, andpharmaceuticals. These products rely on natural resources, and are then converted, processed, packagedand transported to our distribution centres. We rely in manufactured capital in the form of factories, plants,and road infrastructure for these business inputs. Once products enter our distribution centres, they arehandled according to SPAR’s inventory, quality control and order processes – which are further essentialmanufactured capital resources.

Our range of SPAR branded products are developed and packaged for SPAR according to our specificrequirements. These products rely on our intellectual capital in addition to the manufactured capitaloffered by the suppliers selected to produce these.

Other products are branded by their producers and sold under third-party brands in our stores. We follow astringent supplier selection process to ensure the quality, safety, and secure supply of products – acapability that requires intellectual capital.

Social and relationship capital enable us to form partnerships that endeavour to change manufacturing,packaging and consumption behaviour related to the use of plastics, other packaging and water. Initiativesrelated to our new carbon reduction framework use intellectual capital in defining indicators, measuringperformance, and developing action plans to minimise our detrimental effect on natural capital.

The people working in our distribution centres handle, sort and move inventory according to orders anddeliveries. They constitute the human capital required to run the operational side of the business. Theiractivities are supported by employees dedicated to the financial, marketing, retailer services, informationtechnology and human resources aspects of the business.

Our fleet of trucks – and those in our network of suppliers – form a pool of manufactured capital which isapplied to optimised delivery through drop shipments, shared loads, and backhauling, thereby minimisingour natural capital impact.

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We depend on financial capital in almost all business activities as we require funds to procure goods andservices, to pay salaries, to develop new products, to invest in facilities, equipment and to executiverepairs. Financial capital is used to make acquisitions, expand out footprint and deliver long-term growth.

SPAR’ INTERACTION WITH THE SIX CAPITALS

CAPITAL OF VALUECREATION

CAPITAL INPUT REQUIRED TOEXECUTIVE OUR BUSINESSACTIVITIES

CAPITAL INCREASED,DECREASED ORTRANSFORMED THROUGHOUR BUSINESS ACTIVITIES

FIND MOREINFORMATION ANDEXAMPLES OFVALUE CREATEDTHROUGH THECAPITALS

Financial capital We use this capital to procuregoods and services, to paysalaries and tax, to developnew products, to invest infacilities or operations,equipment and repairs, and topay our funders andshareholders. We also providefinancial capital to ourretailers as credit facilitiesand to assist with storeacquisitions orrefurbishments.

Changes in the availabilityand quality of the capital isevident from increasedturnover, margins andoperating profit. Financialcapital is at risk throughremuneration increases andwage negotiations, storeclosures, provisions andpenalties. Positive impactsare delivered throughefficiencies and costsavings.

Reports from ourleadersWhy invest in SPAR

Manufacturedcapital

We use this capital toestablish, maintain andoperate distribution centres(with cooling facilities,recycling and reclamationplants), warehouses, trucks,forklifts, road and portinfrastructures.

We measure our impactthrough increaseddistribution centre space,trucks and volumeshandled, stores opened,refurbished or closed. Newmarkets, routes and productofferings impactmanufactured capital. Wereduce our reliance on thiscapital through efficiency,optimisation andconsolidation efforts.

Operational reports

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Intellectual capital We use this capital to developthe SPAR strategy, SPARbrand, the guild structure,promotions and marketingcampaigns, pricing strategies,‘learning journeys’ andretailer conferences. Itinforms our values andculture, board andgovernance structures,category managementcapability and joint businessplanning with suppliers.

We measure our impactthrough increased sales ofhouse brands, our deliveryon strategic outcomes(through the ethics riskassessment), our ability toimprove integrationbetween functions, andcollaboration betweendistribution centres andcountries. Intellectualcapital informs our auditprogrammes andcertifications achieved, aswell as the effectiveness ofour enterprise riskmanagement rollout.

Strategy andbusiness modelGovernance

Human capital We use the skills, capabilitiesand passion of employees, ourmanagement teams andboard to execute businessactivities and formrelationships.

We measure our impactthrough theincrease/decrease in totalemployees, our trainingspend and access toincreased skills. The qualityof human capital input isinformed by our health andsafety measures, thenumber of injuriessustained, visits to ourclinics, and employeeturnover.

Operational reportsOur materialrelationships

Social andrelationship capital

We use our ability to createand sustain materialrelationships with keystakeholders (suppliers,retailers, employees,consumers and communities)to create an environment inwhich to perform our businessactivities, to partner forfurther value creation and toensure a sustainable foodnetwork.

We measure our impactthrough awards, salesvolumes, retailers lost,customer satisfaction andmarket share, CSIcontributions, food safetyincidents and GUESTprogramme successes.One of the key measures ofsuccess is the sustainabilityof the emerging farmerhubs.

Our materialrelationshipsOperational reports

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Natural capital We use this capital as input ofthe products we distribute andsell, our properties and thewater and energy we use inour operations (includingelectricity, diesel, fuel andgas).

We mainly decrease thiscapital through themanufacturing, distributionand consumption of goods.We mitigate this throughreclamation and recycling,solar power, reducing theuse of plastic, and throughthe targets set by ourcarbon reductionframework.

Strategy andbusiness modelOperational reports

CREATING VALUE THROUGH OUR BUSINESS ACTIVITIESOur 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 termsof retail support and marketing activities. Our business activities ensure that we fulfil our purpose.

Our business activities are interdependent in the three main territories in which we operate. As a system,these business activities collectively ensure good supply chain management which streamlines processesand result in resource savings.

Read more about these activities and outputs in the operational reports. Our business activities aresummarised below, with the emphasis on our South African operations:

PROCUREMENT

> 5 000

suppliers and service providers

> 1 300

SPAR-branded products

We buy goods from suppliers and sell them to retailers at a margin.

Our bulk procurement creates economies of scale. Fixed costs are spread over vast volumes, therebyreducing cost per unit.

Joint business planning with key suppliers targets supply chain efficiencies, including the responsibleuse of resources.

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Our support of local suppliers benefits small businesses, for example through the rural hubs.

WAREHOUSING

286 935 m2

total floor area

39 676 m2

satellite warehouse space

4 296 811

cases despatched per week

We operate warehouses across our distribution centres and satellite facilities, and across varioustemperature disciplines.

We apply advanced technology to optimise the complex process of storing vast quantities of goods fordelivery.

Goods are received from suppliers and unpacked into pick slots.

Retailers’ orders are processed electronically and sorted for transportation.

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DISTRIBUTION

351 trucks

in South Africa

403 trailers

in South Africa

231.7 million

cases despatched groupwide

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 are increasing the use of biodiesel as fuel, which we collect from South African retailers and whichwe recycle.

Our joint business planning streamlines processes, including backhauling and packing techniques.

RETAILER SUPPORT AND MARKETING

903

independent retail owned stores in South Africa

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:

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Store refurbishment and design assistanceMerchandising best practicePublic relations assistanceThe SPAR development fund for retailers

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OUR STRATEGIC OUTCOMES AND TRADE-OFFSWe identified three main outcomes as part of the strategy development process. These outcomes considerimpacts that are internal or external to SPAR and its material stakeholders throughout the value chain.

The outcomes are also subject to deliberate trade-offs where the interests of one stakeholder are weighedagainst another over a given period. The voluntary trading model, for example, allows retailers to procureproducts from alternative suppliers or to compare supplier prices against those offered by the SPARdistribution centres. For SPAR there is then a trade-off in margin to be weighed against the risk to thebrand associated with products not necessarily subject to the same safety and compliance requirementsas those offered by SPAR. Reputational risk is often carried to a greater extent by SPAR than by anindividual store owner. The need for consistency in terms of the SPAR brand and stores vs the free choiceof an independent owner remains a core conflict to be managed in the value creation process.