Discount chain is latest Spar disposal

An excellent performance from the Netto unit has been the only bright point in an otherwise dismal year for Spar, a subsidiary of the French retail group Intermarché. The recession which has taken its toll on results at the hypermarket, supermarket and convenience store businesses operated by Spar has, ironically, boosted sales at the discount chain as consumers tightened their belts.

Spar has been investing heavily in the 1,100-store discount chain in a bid to maintain the unit's momentum in the face of strong competition from bigger groups such as Aldi and Lidl, but it appears that failures elsewhere have finally forced the company to seek a buyer for the chain.

The Financial Times​ claims that Spar is hoping to recoup €500-€750 million from the sale of the business, which will include only the Netto business in Germany. Negotiations are said to be at an early stage and a deal is not expected before the first quarter of 2004.

No names have as yet been mooted as potential buyers for the business, but with the discount sector extremely well developed in Germany, there are likely to be numerous interested parties, not least from companies already active in that sector. Financial bidders are also thought likely to be interested.

Back in August, Spar reported interim sales of €3.02 billon, some 6 per cent lower than the previous year, as its wholesale and supermarket divisions significantly underperformed as a result of the very weak German economy.

But it also said it was hopeful of a late rally as the German economy appeared to be emerging from recession - a vain hope, it now appears.

Spar was on the verge of insolvency earlier this year and was saved only by a last minute change of heart by its creditors, who in May approved a new restructuring plan drawn up in extremis​ by the company's management.

Selling off its only profitable business may seem like folly, but the move is not perhaps as crazy as it seems. Discount stores perform well in times of recession, but with the German economy on the mend, growth at Netto is likely to slow. And with bigger, better-established players such as Aldi dominating the market, making any headway at a time when consumer spending is rising - favouring more mainstream retailers - will be hard.

The timing of the deal is therefore vital - Spar needs to find a bidder before Netto's double digit growth of recent years begins to wane and begin investing in its more traditional supermarket businesses as the economy starts to strengthen again.

Intermarché certainly needs to be seen to be able to manage its foreign investments better than it has in the past. Carrefour, Auchan and Casino are among the most successful companies at spreading their retail formats from France to the rest of the world, and in contrast Intermarché's performance to date has been decidedly poor.

With convenience stores and superettes among the fastest-growing formats in much of western Europe, Spar is well placed to benefit as the German economy strengthens - but its creditor banks will want to see real evidence that the restructuring programme of recent years is finally paying off before breathing more easily.