METCASH UNDER PRESSURE TO CUT PRICES SO INDEPENDENTS CAN COMPETE

Sue Mitchell
Sep 26, 2019
AFR

Grocery wholesaler Metcash is under growing pressure to reduce prices to stop independent retailers from defecting to other suppliers as competition steps up in the $110 billion food and grocery market.

As reported in The Australian Financial Review on Thursday, one of Metcash’s largest customers, Drakes Supermarkets, plans to go into competition with Metcash by supplying other independent supermarkets once it has bedded down a $125 million state-of-the-art automated distribution centre due to open next week in Adelaide.

Drakes owner Roger Drake also indicated he would be prepared to break a supply agreement with Metcash in Queensland and shift to self-supply if he could source stock more cheaply.

The chief executive of Ritchies, Australia’s largest independent grocery retailer, Fred Harrison, said he would honour his long term supply agreement with Metcash but said independent retailers needed cheaper supplies to compete against Woolworths, Coles and Aldi.

“Theres’ no doubt independents need better prices than they have today,” Mr Harrison said.”We’re asking Metcash for more competitive pricing so we’re closer to Woolworths and Coles  – we’ve had some successes but there is a long way to go to make our prices more competitive,” he said.

“They’re endeavouring to bring about change but supplier negotiations are a large part of that [and] it’s not as easy as clicking your fingers – it does take commitment from retailers, Metcash and suppliers.”

Mr Harrison said Ritchies would honour its supply agreement with Metcash for at least as long as Metcash retained a 26 per cent equity stake in the business.

“You never say never but our intent would be to honour the supply contract,” he said.

“But things change all the time in this business,” he said, adding that the new Drakes distribution centre might be ready to supply other independents in a year or two.

“If they can supply cheaper, if the opportunity is there at the time, we’d look at it, but it’s not something we’re actively pursuing.”

Metcash locked up most of its largest independent retailer customers in South Australia with 10 year supply agreements in August last year to prevent them defecting to Drakes, but the terms of those agreements are not known.

Mr Drake told the AFR he had been approached by independent retailers seeking  other sources of supply but said Drakes first needed to prove that it could be cheaper than Metcash.

“I don’t think the [Australian Competition and Consumer Commission] would look down on anybody who wanted to change over if we were cheap enough,” he said.

“You can’t stop competition … if we’re cheap enough we have to be an alternative.”

Metcash chief executive Jeff Adams said the wholesaler was investing heavily in its independent retail network, including building a new distribution centre in South Australia to reduce costs and supply a wider range of products.

“Independent retailers have shown over many years that they are stronger together and we will continue to work in partnership for their success,” he said.

“We have long term supply agreements in place with the overwhelming majority of independent retailers in South Australia (excluding Drakes).

“We are also working closely with our independent retailers across all states to continue to improve their competitiveness in the market and underpin their ongoing success,” he said.