Metcash sheds stores to streamline supply chain

Fifteen regional Campbells Cash & Carry branches will close and Foodlink will be sold as Metcash restructures its business

Metcash sheds stores to streamline supply chain
METCASH sheds stores to streamline supply chain

By Anna Game-Lopata | April 3, 2012

Fifteen regional Campbells Cash & Carry branches will close and Foodlink will be sold as grocery wholesaler Metcash restructures its business to streamline efficiencies

Metcash CEO Andrew Reitzer says a total of 478 positions will be made redundant in the restructure which will include corporate functions and logistics.

A company spokesperson tells SCR the changes will be implemented to reflect recommendations delivered by fifteen project groups established as part of a strategic review, announced last November,
which looked at every aspect of the Metcash business.

While the consolidation of Campbells has been the major focus of today’s announcement, the duplication of processes within the logistics function such as dispatch to retail customers has also been addressed.

The spokesperson
echoes Andrew Reitzer’s comments that the creation of Metcash Food and Grocery, through the combination of IGA Distribution, Merchandising, Fresh and Campbells, has identified opportunities to end such duplication.

The closure of 15 regional Campbells Cash & Carry branches is a reflection of a changing dynamic in the convenience sector.

As a result, Reitzer says Metcash's
mix of businesses is
swinging more heavily towards the organised petrol and convenience sector and away from the accelerating decline of traditional convenience stores.

"This strategy is aimed at further reducing the fixed cost base of Campbells while replacing it with the latest technological single pick distribution solution and a network of optimally situated branches,"
Reitzer says.

While Reitzer
adds potential exists for the establishment of further strategic franchise arrangements in some areas, 315 positions will become redundant in the Campbells business.

The other 163 positions being abolished are in Metcash corporate offices.

"We will incur a one-off restructuring charge of $34 - $43 million which will result in an improved operating income of $25 - $30 million for FY13 and a further $10 - $15 million per annum for FY14," Reitzer says.

Reitzer says the company also aims to maximise the potential of each of its retained sites by better combining the functions of each business within them.

"The centralisation and expansion of marketing will ensure improved execution and greater 'share of voice' in the marketplace," he says.

He points to the need to meet difficult trading conditions as the main reason for the changes, as continued deflation pushes prices and margins down, and value-conscious consumers increasingly purchase on discount.


In addition Reizer says Metcash’s specialist food service Foodlink is no longer core to the business, so it will be sold to food supplier Bidvest Australia.

"The terms of the sale agreement are confidential to the two parties at this stage and contracts are in the final stages of preparation and the Strategic Review restructure charge includes the net profit on sale of the business," Reitzer says.

"The 90 staff currently employed by Foodlink will be offered employment by Bidvest as part of the sale agreement. "

Metcash Queensland joint ventures Cornetts and Walters, hard hit by environmental and economic difficulties specific to the market will also be re-structured, with the closure of some stores.

Both companies have taken on many new outlets in recent years and the current trading environment has stifled their ability to develop these stores to acceptable levels of profitability.

"The two joint ventures have been hit hard not only by deflation but also by the series of natural disasters experienced over the last 12 months together with dramatically falling tourism numbers which has particularly hurt these businesses," Reitzer says.

"Metcash has assisted both management teams to develop a work out plan and will assist in restructuring each of the businesses.

"The expected restructuring will see some unprofitable stores close."

"In view of the particularly difficult trading environment in Queensland we believe it is necessary for Metcash to take a prudent view of its exposures to these two joint ventures and will therefore book a largely non-cash impairment charge of approximately $75-$90 million after tax."

"Across the broader business Reitzer says customers are holding market share and remaining resilient in a challenging trading environment.

"We will continue to support them and champion their interests,"
he says. "Metcash itself will be focussed on securing the savings identified from the Strategic Review over the next two years."

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