Adapt or die

Metro forced to change tune as cash and carry mar­ket evap­o­rates

Finweek English Edition - - COMPANIES&MARKETS - ANDILE MAKHOLWA andilem@fin­

MET­CASH TRAD­ING – the un­listed own­ers of Metro Cash & Carry – is trans­form­ing its stores into a hy­brid for­mat, op­er­at­ing both whole­sale and re­tail. The group has had it tough over the past decade or so, mak­ing the change ob­vi­ously in­evitable. Big su­per­mar­ket chains Shoprite, Spar and Pick n Pay have in­fil­trated the lower-end mar­ket, pre­vi­ously served by in­de­pen­dent re­tail­ers – Met­cash’s tra­di­tional cus­tomers.

“The cash and carry mar­ket is a dy­ing in­dus­try,” says Syd Vianello, re­tail an­a­lyst at Ned­bank Cap­i­tal. “When an in­dus­try is dy­ing, the weak­est is the first to go. Met­cash is the weak­est.” The group has also strug­gled to com­pete with its peers, such as CBW and Shield, which have a strong par­ent (Mass­mart) back­ing them.

A week ago Met­cash an­nounced it was clos­ing down 56 of its stores, leav­ing it with 75 out­lets. More than 1 000 em­ploy­ees will lose their jobs as a re­sult. The clo­sures fol­low an an­nounce­ment in March that Met­cash has sold its fran­chise divi­sion – which in­cludes con­ve­nience out­lets Friendly, Seven Eleven and Price Club Dis­count Su­per­mar­ket – to Shoprite, as part of its ra­tio­nal­i­sa­tion strat­egy to build hy­brid stores.

Vianello says cash and carry whole­salers have had to ad­just their busi­ness mod­els over the past few years to re­main in busi­ness. Met­cash is on the right track, but the suc­cess of its hy­brid con­cept will de­pend on its stores roll­out, which may be ham­pered by its lim­ited re­sources. The group is said to be in a pre­car­i­ous fi­nan­cial po­si­tion and strug­gling with debt. The roll­out of the plan may re­quire on­go­ing fi­nan­cial sup­port from in­sti­tu­tional share­hold­ers Ned­bank, Old Mu­tual and In­vestec.

The hy­brid for­mat is a new de­vel­op­ment within the cash and carry mar­ket as op­er­a­tors fight to re­main in busi­ness. Typ­i­cally, hy­brid stores are be­tween 3 000sq m and 7 500sq m.

“They sell goods to housewives/hawk­ers/spazas and shop­keep­ers. All at dif­fer­ent prices,” says Met­cash CEO Peter Dod­son, the brains be­hind the group’s reengi­neer­ing. “Re­tail­ers have al­ways looked af­ter ap­prox­i­mately 60% of the mar­ket and whole­salers 40%. Hy­brids look af­ter 100% of the mar­ket.” One ex­am­ple of a hy­brid is the lit­tle-known In­de­pen­dent Cash & Carry (ICC) group.

Dod­son says the plan is to get the busi­ness op­er­at­ing ef­fec­tively and prof­itably in its new, clearly stated model and to make sig­nif­i­cant in­roads over the next cou­ple of years into the food mar­ket. “We want to firstly re­vamp all of our ex­ist­ing stores and there­after we’ll take up sites (they must be the right sites) as and when we find them,” he says.

The de­cline in whole­sale fast-mov­ing con­sumer goods (FMCG) sales – as a pro­por­tion of to­tal FMCG sales in SA – is con­sis­tent with global trends, says Mass­mart ex­ec­u­tive Brian Leroni. “In de­vel­oped economies whole­sale FMCG sales have sta­bilised at ap­prox­i­mately 25% to 30% of to­tal FMCG mar­ket share.” Mass­mart – which re­cently ven­tured into food re­tail­ing in its cash and carry divi­sion – says the em­pha­sis it’s placed on its re­tail food propo­si­tion is in re­sponse to the de­cline in whole­sale FMCG sales. The group is build­ing its Cam­bridge Food su­per­mar­ket chain as a com­pelling propo­si­tion in lower-end mar­kets (still dom­i­nated by in­de­pen­dents) and grow­ing it through ac­quir­ing in­de­pen­dent re­tail­ers – the lat­est be­ing Rhino Cash & Carry.

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