Oblivion just around the corner for small grocers.
Jane Harper – The Telegraph, Wednesday 04 April 2012.
Milk bars are on the cusp of oblivion, dying out as the supermarket giants wage their vicious discounting war, the nation’s biggest grocery wholesaler says.
Metcash says corner stores and other independent growers are withering without the buying and marketing power of the major brands.
The Franklins owner and IGA supermarket supplier is to cut 478 jobs as it scales back its wholesale supply business in response to dwindling demand from independent grocers.
Metcash yesterday announced plans to close 15 of its 38 Campbells Cash & Carry supply stores nationally as part of a restructure.
It will not reveal where the jobs will be lost until next week, after staff have been informed.
The group’s share price tumbled more than 4 percent yesterday after it announced the restructure, which will cost up to $43 million.
Analysts said shareholders would view the closures as even more evidence of weak conditions in the retail sector.
Metcash chief Andrew Reitzer said the independent store model was unlikely to survive and grocers were hardest hit by the price war generated by giants Coles and Woolworths.
“Any independent that isn’t part of some sort of banner such as Metcash, United Fuels, 7-Eleven all stand no chance.” Mr Reitzer said. “I don’t think it’ll ever go to zero (market share) but there just isn’t enough market share to run those 15 Campbell stores to supply one market.”
He said the price war was not affecting the company’s IGA supermarkets as suppliers often matched deals offered to Coles and Woolworths in order to maintain a viable third party in the market.
“Promotions like $1 a litre milk haven’t impacted IGA – it’s just another promotion in the range.” Mr Reitzer said.
“But the smaller convenience stores that can’t afford to sell milk below cost have been severely impacted.”
On top of the market dominance by Coles and Woolworths convenience stores and smaller supermarkets such as Franklins have also been hit hard by the arrival of Costco into Australia, the US retail giant stealing customers with its bulk-buy model.
Metcash said the one-off charge for the restructure, of $34 million to $43 million, would be included in the full-year results.
It has maintained its forecast for underlying earnings per share to grow at a single-digit rate this year.
Under the restructure, Metcash’s IGA Distribution, merchandising, fresh and Campbells businesses will be merged into a new Metcash Food and Grocery business.
Metcash also said it had sold its specialist food business Foodlink to Bidvest Australia.