Adapt or die
Metro forced to change tune as cash and carry market evaporates
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.