Burning through cash

Push into groceries killed Farmers Direct

AUSSIE Farmers Direct erred by pushing into the broader grocery market and was burning through $500,000 a week before its collapse, administrators say.

They say the group was ultimately sunk by its decision to stray from its core business of selling fresh milk and bread into a full-line grocery offering that brought it into direct competition with supermarkets.

The online grocery provider, which opened to much fanfare in 2005 and promised to shake up the $90 billion grocery sector with its direct-toconsumer food delivery business, has collapsed into administration.

Aussie Farmers Direct closed immediately yesterday, leaving stranded around 100 franchisees, 260 employees and 100,000 customers

It is the latest victim of the supermarket wars being waged across the aisles by Coles and Woolworths, with added pressure coming from discounters such as Aldi and Costco.

Administrator Craig Shepard, of KordaMentha Restructuring, said the four shareholders in Aussie Farmers nationally. Direct had injected about $70 million into the struggling business over the past few years, but it had failed to turn a profit.

It is owned by four venture capital funds, three based in Hong Kong and the fourth in South Africa.

There were no bankers to the company, with the lurch into administration not forced by lenders but rather a decision by its shareholders. Mr Shepard said that while its 260 employees would be paid out, the 100 franchisees to the business that undertook deliveries had most likely lost all their money.

“The franchisees had invested some hard-earned cash into a truck and into a franchise network and now that is gone,’’ Mr Shepard said.

It looked as though the company had not made a profit in years, he said.

“Over the last four years, its shareholders have put in over $70 million – they’ve burnt through that,” Mr Shepard said. “This thing doesn’t look like it has ever turned a profit, particularly over the last four years.’’

Mr Shepard estimated Aussie Farmers Direct was quickly depleting cash.

“It burns $500,000 a week,” he said.