So who is the champion of the independent retailer?

Jeff Rogut
April 2012

At the Convenience Leaders Summit which AACS facilitated last year one of the keys for future success identified during the panel discussion was COLLABORATION between retailers and suppliers. We have known for a long time that costs borne by convenience retailers have not always been the cheapest and this has again been borne out in discussions where many smaller stores are in fact buying from our competitors – Coles and Woolies – to obtain better costs and higher margins. This is true in the areas of grocery, soft drinks, confectionery and other categories.

The recent announcement that Campbells is closing branches brings into question which supplier/s is / will be the real champion for independent retailers? The article below by Blair Speedy in The Australian highlights examples that we are familiar with:

“Independents turn to Woolies and Coles as Metcash flags closure of Campbells

Blair Speedy
The Australian
April 09, 2012

INDEPENDENT corner store operators are buying their stock from big retailers Coles and Woolworths, claiming the uncertain future of Metcash’s more expensive Campbells Cash and Carry will have few consequences for the sector.

Metcash last week flagged plans to close 15 Campbell’s outlets, mainly regional, as their customer base of independent convenience stores was losing sales to petrol stations and the supermarket chains. However, store owners have told The Australian they stopped buying most of their stock at Campbell’s years ago, as they can get better prices simply by loading up a trolley at Coles or Woolies.

Convenience and Mixed Business Association executive director Domenic Greco said some of his members made deals with independently owned IGA supermarkets to purchase from Metcash’s supermarket wholesaling business, IGA Distribution, which sold at cheaper prices than Campbells, paying the supermarket operator a margin on top of the cost price.

“They give the IGA stores a hell of a lot better pricing than they do to our members when they buy from Campbells,” he said.

However, when unable to make this sort of deal, many convenience stores simply paid prices to Coles and Woolworths — which were still cheaper than Campbells, Mr Greco said.

“They can buy cheaper from a major supermarket than anywhere else, and now they have nowhere else to go anyway,” he said.

“We estimate about 10 per cent of supermarket sales are coming from small businesses, which are spending $2000 to $3000 a week on stock.”

Food manufacturers had previously delivered directly to stores, but that practice has largely ceased as the supermarkets that were their largest customers preferred to receive stock at centralised distribution centres. “A lot of the suppliers can’t afford a distribution network any more, because it would only be servicing a handful of milkbars and independent service stations, so it’s not cost-effective for them,” he said.

Those that do continue to service smaller retailers are increasingly imposing minimum order limits far in excess of the stock needed by the stores, and were no longer offering bulk discounts.

Harry Douzmanian, owner of a convenience store in the Melbourne suburb of Berwick, said bread for which he paid more than $3 a loaf was available most weekends at Metcash-supplied IGA supermarkets at two loaves for $4.

“How can I compete with that? Even their normal shelf price is $3.27, which is less than we can buy it for, so most shop owners have given up and are just buying from the supermarkets,” he said.

Mr Douzmanian said the milk and bread price war that Coles ignited last year had shut corner shops out of their two most reliable product categories.

“Milk is $1 at the supermarkets, but we pay $1.40 to $1.60 per litre and then we have to pay for refrigeration and our other costs,” he said. “It’s the same with bread. The bakers don’t want to sell to us unless we take 50 loaves, and we can’t return it if it doesn’t sell. They make it impossible.”

A Coles spokesman said the supermarket chain had restrictions on bulk-buying to ensure stock availability for all customers, making it unlikely that independent stores bought in large numbers.

Woolworths declined to comment, but it is understood it also monitors bulk purchases of stock and will impose item limits.

A Metcash spokesman declined to comment on the loss of convenience store wholesaling to the supermarket chains.

Meanwhile, Campbell’s is in discussions with at least two parties on possible sale of a number of stores set for closure.

The stores marked for closure or sale include Tamworth, Newcastle, Coffs Harbour, Orange and Wagga Wagga in NSW, Richmond and Shepparton in Victoria, Toowoomba and Maroochydore in Queensland, Bunbury in WA and Canberra. Stores would begin closing in late May.”

Many retailers and suppliers are looking at alternative supply chain solutions and in order to survive, this area will become increasingly important fort convenience retailers. It really is time for greater collaboration between retailers and suppliers and a visionary approach to be taken.

The future sustainability of your business as a retailer should not depend on the one major national wholesaler and how they perform in the marketplace. Certainly there needs to be more opportunities for our retailers than buying from their aggressive competitors, even though there may be price advantages.

AACS will stay close to these issues as we have been, and will foster discussions between retailers and suppliers to ensure that our channel does survive these challenges with confidence.