Spar loses out in franchisee brawl

• Court rejects application to overturn high court judgment in favour of Giannacopoulos Group

Spar has been dealt a blow after the Supreme Court of Appeal (SCA) slapped down its special leave application to overturn a high court ruling that its decision to cut off its biggest franchisee, the Giannacopoulos Group, was done in bad faith.

The decision left Giannacopoulos Group vulnerable to Spar seizing its stores over fears on loan payments defaults or other credit obligations.

The SCA judgment on Thursday stopped short of accusing the JSE-listed company of sabotaging the group, but adds credence to the more than R2bn lawsuit launched by the franchisee for damages. Spar, which is grappling with a debt burden, in its 2024 annual financial statement listed the lawsuit as one of its contingent liabilities.

“As was initially reported in 2022, summons were served on the company by one of its larger retailers, the Giannacopoulos Group, for alleged damages of R2.1bn arising from a membership dispute. The company denied any liability and has filed a plea to defend the matter,” reads a financial note.

The wording of the SCA judgment will have Spar’s top brass concerned. The judges of the court did not mince their words, criticising their conduct since the seven-year-long saga began and jeopardising a relationship that spanned more than two decades.

The group, run by the Giannacopoulos family, operates 23 Superspar and Spar stores and 22 Tops liquor stores. It employs about 2,800 people.

The relationship turned sour in 2019 when Spar decided it no longer wanted to trade with, supply stock, grant credits and guarantee the drop shipment purchases to the Giannacopoulos Group or allow it to continue to trade under the Spar brand.

Some of the reasons advanced by Spar was that the company had violated various labour laws; attempted to bypass the Spar trade model by securing direct supplies and operated in competition with Spar.

The Giannacopoulos family has maintained that these allegations are rooted in animosity that developed between one of the Giannacopoulos brothers and two directors of the Spar and that Spar merely wanted the group to fail so it could seize its stores.

Another sticking point was Spar’s decision to vary the terms of the Giannacopoulos Group’s credit and supplier relationships with the group.

“Spar did not provide any evidence to show that the Giannacopoulos Group had or was likely to purchase excessive stock beyond its ability to sell. In any event, a default by the Giannacopoulos Group would lead to Spar executing on their security, an outcome which could lead to the Giannacopoulos Group losing its businesses,” the unanimous SCA judgment reads.

“To compound matters, the timing of the variation affected the peak festive season. Shortage in stock led to customer complaints and negatively impacted on the Giannacopoulos Group’s revenue. Taking all these facts into account, there is merit in the contention by the Giannacopoulos Group that the sudden alteration by Spar of the credit terms had no reasonable basis and was not executed for a legitimate purpose,”

“One cannot resist the conclusion that the alteration of the credit and drop shipment terms was part of a concerted effort by Spar to throttle the Giannacopoulos Group out of its businesses, since it had failed to sustain the execution of the ex parte [without notifying the other party] orders and to terminate their membership from the Guild [an entity established by Spar to facilitate, promote and regulate the Spar voluntary trading group system].”

Spar operates mainly as a wholesaler, but its success depends on how well stores perform and how quickly independent retailers adapt to major market trends.

The decision by the SCA comes at a time when Spar is taking painful steps to pay down its R9bn debt, which involves selling its head office and other properties, leasing its fleet and other drastic measures.

The company in September said it had found a buyer for its loss-making operations in Poland in local retailer Special for R185m.