This is how much it costs to own a Spar, Pick n Pay, or OK Food store
- South Africa’s retail trade industry contributed to R1 trillion in sales to the local economy.
- Woolworths stopped offering franchise opportunities in 2010, but Spar, Pick n Pay, and OK franchises are available.
- Opening a Pick n Pay store costs in the region of R10 million, and a KwikSpar Spar between R6 million and R7 million.
- Buying an existing store is cheaper – but still costs several million.
- For more, go to Business Insider SA.
South Africans spend a staggering amount of money in retail stores – more than R31,900 per second at last count by StatsSA. This amounts to billions spent at tills each year, and a tidy amount of this ends up in the back pockets of supermarket owners.
If the supermarket sells a fair amount of meat, you can expect even greater profits; this sector of the market contributes more than 8% to total sales, significantly more than other items you'll find on a typical grocery store shelf.
2020 was an interesting year for supermarkets. As essential services they were among the only businesses allowed to remain open throughout the country's lockdowns, which means they fared okay, relative to many other businesses and industries, although the ban on alcohol, and the prevalence of Covid-19 in many stores, still hurt the bottom line of many.
If you’d like to get your hand on some of this money passing through retail stores every day, you might be tempted to invest in a supermarket. Taking on the country’s big five supermarkets as an independent retailer would be a brave decision - Woolworths, Pick n Pay, Spar, Checkers and Shoprite hold the lion’s share of the market in South Africa.
But an alternative, that would also share some of the financial burden and assist with the complex logistics of running a supermarket, is to buy a supermarket franchise that taps into existing supply chains and logistics systems.
The supermarket franchise market in South Africa is still relatively small. Woolworths stopped franchising its stores in 2010, and Shoprite, Checkers, and U-Save stores are all corporate owned, although it's possible to franchise some smaller stores within the Shoprite Group that trade under the OK brand.
Even supermarket giant Pick n Pay keeps most of its operations in-house, although there are several franchised stores that exist around the country.
All of which is to say that if you want to run your own big brand supermarket in South Africa, you'll need to purchase a Spar, Pick n Pay, or OK.
Purchasing a supermarket franchise is not a small investment, and running it is a complex task that will require intensive training. At the very least you’ll need to lay down R6 million for a small supermarket, and if you want to go bigger you’ll need to double that investment.
Getting a Pick n Pay franchise
Pick n Pay started as a family-run business, but has since grown to include 1,795 stores, of which 719 are franchises covering their supermarkets, express, clothing and liquor stores.
In 2019, Pick n Pay increased its turnover to R86.3 billion. According to its 2019 financial results, the business employs 90,000 people, 34,000 of which work at franchise stores, and has more than 7 million loyalty customers on their books.
Some of the 300 franchisee-run stores in South Africa occasionally come up for sale.
The floor space of these supermarkets is large, though, on average, 3,000 square metres in size. This increases the complexity of running the business, and pushes up the initial purchase price. Even so, Pick n Pay says it works with prospective franchisees to offer the best chances of success - and they've been a respected franchisor for the last 25 years.
Prospective Pick n Pay franchisees must meet strict criteria, which includes undergoing an intensive evaluation, and then completing a training process prior to taking over a new store.
Franchisees must also purchase a comprehensive operation manual that details all aspects of running the business.
Establishing a new store costs in the region of R10 million. This purchase price depends on the size and location of the store, and the developer’s contribution.
Once the store is up and running, franchisees must also pay a fee of 1.25% of gross annual turnover.
Getting a Spar franchise
Spar has its roots in the Netherlands in 1932, when Adriaan van Well founded DESPAR. The name was initially an acronym, which translates to “All will benefit from united co-operation.”
They later dropped the DE and named it SPAR, a brand which has been synonymous with South African supermarkets since the 1960s. 2020 was a good year for the brand; it saw a 13,5% annual turnover increase, to a total of R124.3 billion.
There are currently over 1,000 Spar stores in Southern Africa, most of which are family owned. Although the holding company enforces certain regulations to ensure that they maintain the brand’s image, each store is independently owned and operated. In this way it is a somewhat looser model than the strict franchisee approach of Pick n Pay.
There are three categories of Spar that prospective owners can purchase: KwikSpar, Spar, and SuperSpar. All require at least 40% of the cost to be available in unencumbered cash.
KwikSpar is the smallest and most affordable of these businesses. They are typically 450 to 600 square metres in size, and cost at least R5 million to buy if already in existence. Establishing a new branch will cost a few million more. Retailers must also have a working capital of approximately half a million rand.
Traditional Spar stores are 1,100 to 1,600 square metres. In 2019 the average cost of these stores was between R10 million and R12 million, but there are now existing stores that start at R8 million. Franchisees require a working capital of R900,000.
The biggest, and most expensive, is SuperSpar. These high-end stores must be at least 2,500 square metres in size. They cost at least R16 million to R20 million to equip, and require a working capital of R900,000. Buying an existing SuperSpar costs upwards of R10 million.
The cheapest franchise option in the Spar stable is their Tops liquor store. These cost upwards of R1 million to establish, but aren’t awarded as a separate entity. According to franchise documents, they’re only granted once one of the above supermarket applications is approved.
On top of the above, retailers pay a guild fee of 1% of average monthly turnover. The holding company uses this for advertising such as leaflets, press, and television commercials.
Getting an OK Foods franchise
OK Foods is a subsidiary of the Shoprite Group, and it's the easiest way to buy into the country's leading chain as a franchisee.
While it's not currently possible to buy a Shoprite or Checker's store in South Africa, there are more than 400 OK stores in Southern Africa.
The OK group has a long history dating back to the late 1920s, but today draws on the expertise and support networks of the Shoprite group to fill an interesting niche in the local market across a few brands.
If you're looking to get in on brand the best way might be to purchase an existing store, some of which are under sub-brands of 7 and Everyday. The Welkom 7-Eleven, which has an annual turnover of R660,000, is currently up for sale for R1.5 million, and Everyday L'Agulhas, with a turnover of R850,000, is for sale at R2.5 million.
An OK Grocer franchise in Swellendam is slightly more expensive – it is currently going for R2.85 million, but has an average turnover of just under R1.5 million.
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