Morrice getting back into the game

John Durie
JUNE 24, 2014
THE AUSTRALIAN
IAN Morrice is attempting to do something retailers do around the world, except it seems at the formerly Andrew Reitzer-led Metcash, and that is operate his wholesale business based on retailer and consumer needs.
Nothing revolutionary here except by way of comparison to his predecessor, and that helps explain why in the present tepid retail market Morrice is battling.
Aldi has annual turnover of $5 billion, 10 per cent of the national grocery market, and is just moving to South Australia and Western Australia.
Morrice’s compatriot at Coles, Ian McLeod, got the business moving again by getting staff actually being proud to work at the place again, but it’s not quite so simple for Metcash because it has competing outlets.
Likewise why former Kingfisher comrade Matt Tyson at Master’s is battling the Bunnings behemoth.
Morrice is trying to slot into the middle somewhere.
In short, while the market liked the fact earnings per share only fell by 13 per cent and not at the upper end of his stated range of 15 per cent, there are still challenges before him.
He is at least starting from the right position of actually working for his customers rather than the other way round, which is how Reitzer played the game.
Morrice needs to because unlike Coles and Woolworths he is not an integrated retailer and needs to pick up a margin before supplying to partly owned franchises, who in turn want to earn a margin before the average punter walks away with the bottle of wine or a jar of vegemite.
That is a tough business model to work with when your competitors are not standing around doing nothing and everyone is basically playing in the same pit with fresh food the latest toy.
Costs of doing business as a percentage of gross profit has increased from 62.4 per cent a year ago to 67.5 per cent as Metcash continues adding scale but is yet to make the deals earn their way.
Returns on funds employed have fallen over the last five years from 21.4 per cent to 16.7 per cent, while sales revenue has increased by 3.8 per cent a year to $13.4bn.
Food and grocery sales fell by 0.5 per cent last year, even though Metcash added more outlets and like-for-like sales fell by more than 2 per cent.
At $9bn, Metcash is not quite twice Aldi’s size, but the latter is growing faster.
Morrice is doing all the right things investing on efficiency, with his supply-chain project Mustang aimed at packing 600 cases per hour, up from 150 at the present warehouse.
He’s still got a battle with his retail customers over who picks up the cost of lower-priced groceries, with each saying it’s the other one, and then the big guys demanding the better deals.
It’s a tough game, but at least Morrice is starting from the right side of the fence.