Woolworths, Coles duopoly crushes Aussie Farmers Direct

Eli Greenblat
March 6, 2018
The Australian

The power of super­market chains Woolworths and Coles, which have collectively poured billions of dollars into lower prices and launching enticing online stores, has crippled grocery site Aussie Farmers ­Direct, sending it to the corporate graveyard. 

After more than 13 years of trying to win over Australian consumers to its online grocery and meals delivery platform, the venture-capital owners behind Aussie Farmers Direct have finally called it a day, placing the business in the hands of voluntary administrators yesterday.

What is emerging from the ashes is that the company reached too far and flew too high in its bid to compete with the major ­supermarket chains, and it was burning through $500,000 in cash a week.

Aussie Farmers Direct started in 2005, delivering milk to country towns, and quickly expanded its range to include other dairy products, vegetables and then packaged groceries.

Before its collapse it also made a push into ready-to-eat meals in a co-branding deal with Weight Watchers.

Its general store site, which ­recently opened for business, ­offered about 4000 grocery items and brought it into a head-to-head competition with the heavyweight supermarkets.

In the $90 billion grocery sector, Aussie Farmers Direct found itself outspent, outmarketed and outmatched online as Woolworths and Coles increasingly slashed their prices and rolled out superior websites.

Shoppers who would visit Aussie Farmers Direct for fresh groceries then found themselves at a Woolworths, Coles, IGA or Aldi anyway for other items, such as packaged goods and household items, and ultimately chose to do all their shopping in the one location.

Aussie Farmers Direct was closed immediately yesterday by the administrators from KordaMentha Restructuring, leaving about 100 franchisees, 260 employees and 100,000 customers stranded nationally.

Administrator Craig Shepard told The Australian the four shareholders in Aussie Farmers Direct had injected about $70 million into the struggling business over the past few years.

“This thing doesn’t look like it has ever turned a profit, particularly over the last four years,’’ Mr Shepard said.

Financial documents lodged with the Australian Securities & Investments Commission show the losses had mounted to at least $30m by 2015 and that it was losing $500,000 a week in cash before its collapse.

Mr Shepard said that when Aussie Farmers Direct started in 2005 with its delivery of fresh milk and dairy, it might have been profitable, but a recent push into full-line groceries through its general store site triggered its demise.

“They tried to expand that offer to get a wider penetration into the family pantry by getting into dry goods, cereals, things like that, and I reckon that is what hurt them. It’s too hard,’’ he said.

“You can’t compete with the supermarkets on that. It is hard enough to compete on bread and milk.’’ 

In an issued statement yesterday, Aussie Farmers Direct was quick to blame the major supermarkets, food price deflation and the tough retail conditions for its demise. 

“As part of a highly competitive grocery sector dominated by two major players and an environment which is not only price-deflationary but, in some instances, sees imported products sold for less than what it costs to produce them in Australia, the business was not able to effectively compete,” it said.

“Furthermore, the generally soft retail landscape in Australia tied with flat wage growth has also taken its toll on the business.” 

A creditors meeting will be called next week.