Analysts warn Metcash must safeguard its business from independent distributors

Catie Low
September 25, 2015
The Age
Grocery wholesaler Metcash must defend its share of the wholesale market from independent distributors to safeguard its buying power with large suppliers and manufacturers, analysts say.
Expansionist distributors and independent grocery suppliers are eyeing Metcash’s share of the grocery wholesale pie and building their growth on taking a larger slice of it.
Citi retail analyst Craig Woolford said Metcash needed to do more to limit this “leakage” to smaller distributors and suppliers.
“It points to problems with Metcash’s buying process or its supply chain features, which they need to address because the supply and efficiency of Metcash should outweigh these other offers,” Mr Woolford said.
Metcash has never supplied all of the grocery stock to its retail chains but retailers report an emboldened independent distribution sector is pushing into new territories, in addition to their traditional terrain of confectionery and beverages.
Distributor Hollier Dicksons is expanding its grocery range into new categories, including pet food, as a way of expanding its business.
Managing director Arthur Essey said it was a very tough market but there were opportunities in lines Metcash didn’t carry and there was also the potential to strike deals with the big IGA retail groups like Ritchies Supermarkets.
Metcash said independent distributors had always been part of the supply market and its model was to provide retailers scale they could not get otherwise at a lower cost.
But CLSA analyst David Thomas said Metcash’s teamwork score, a measure of how much product it supplied to its retailers, had been in decline.
“These scores have been dropping for a while but the key risk is that the big barons, those [chains] with 40 or 50-plus stores, increasingly go direct to suppliers,” Mr Thomas said.
He said the more the barons like Drakes worked directly with suppliers and producers, the more “emboldened” they were likely to become but he said any serious investment in supply had “clear execution risk”.
“If they put in their own warehousing then [Metcash] would lose a chunk of buying power. That’s the bearish argument. It’s been around for a while and it’s probably reflected in the share price.”
Former Metcash executive and SPAR Australia managing director Lou Jardin said the number of independent distributors had escalated in the past two years, forcing the wholesaler to price match to defend its patch.
“We have certainly been watching this very carefully but because of the way we operate we are very close to the whole situation,” Mr Jardin said.
“We run on a very low cost base, which gives us the ability to match on price.”
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