Metcash dives after losing major 7-Eleven supply deal

Carrie LaFrenz

Nov 22, 2019

AFR

Metcash Limited shares dived more than 10 per cent after the wholesaler revealed it will be looking to plug a big sales gap after failing to reach agreement with convenience store network 7-Eleven on a contract renewal for the East Coast of Australia.

7-Eleven – which has 700 stores around Australia and annual sales of more than $3.4 billion – told Metcash that it will not be renewing the current supply agreement following its conclusion in August 2020 after the pair were unable to reach agreement over requirements for the east coast, including delivery routes and scheduling.

The news is a major blow to Metcash which recently lost its $270 million a year agreement with Drakes Supermarkets, one of its biggest customers.

Shares in Metcash dived 33¢, or 10.86 per cent, to  $2.71 each on the news.

The wholesaler said Friday that 7-Eleven’s requirements would lead to supply being uneconomic for its convenience business and it remains in discussions with 7-Eleven to continue supply in Western Australia, as well as a number of smaller categories on the east coast.

Total convenience annual sales to 7-Eleven are about $800 million, which comprise predominantly lower margin tobacco sales, said Metcash.

“Metcash will be assessing opportunities to help offset the future earnings impact of today’s advice from 7-Eleven,” it said in a statement to the ASX.

The convenience store is changing its supply chain to support the company’s growth and focus on fresh food, and has put contracts for the supply of food and groceries up for tender.

Metcash has been supplying 7-Eleven since 2005, when the convenience store chain had about 350 franchised stores.

The initial contract, worth about $200 million a year, was extended in 2011 when 7-Eleven bought about 230 Mobil outlets, which boosted the agreement by about $140 million a year.