Metcash to build new distribution centre – loses major customer

30 May, 2018 by Andy Young

Metcash has confirmed that it is planning for a potential new purpose-built distribution centre in South Australia, despite losing a major customer in the state.

Metcash said it is well advanced with site identification, assessment work and preparation for regulatory approvals for the new distribution centre.

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In a statement to the ASX the company said: “If approved and constructed, the distribution centre will enable local independent retailers in South Australia to benefit from significant operational efficiencies, as well as accessing a broader range of products. It would also benefit local suppliers through opening up of a pathway to access Metcash’s extensive distribution network.”

Although Metcash said it has received support for the centre and long-term Metcash supply from a number of its major independent retailer customers in South Australia, one of those will not be Drakes Supermarkets.

Drakes has a contract with Metcash which runs until June 2019 and the supermarket has advised the company that it will not be making a commitment to have its stores supplied from the new distribution centre.

Metcash said that its total sales including tobacco to Drakes Supermarkets were around $270m in FY18.

The ASX statement added: “Metcash is assessing the implications of this advice from Drakes Supermarkets, which will be taken into account in the company’s FY18 year-end review of carrying value of its goodwill and other assets.

“The Supermarkets & Convenience pillar is expected to report a 1.2 per cent decline in total sales and a 3.6 per cent decline in wholesale sales, excluding tobacco for the year ended 30 April 2018.

“FY18 earnings for Supermarkets & Convenience is expected to be in line with the prior financial year. It is not expected that this advice from Drakes will have a material impact on the earnings of the Supermarkets & Convenience pillar in FY19.”

Drakes has said that it plans to build its own distribution centre in Adelaide’s north and will move to self-supply when its contract with Metcash expires in June next year. The chain currently operators over 50 stores in South Australia and Queensland and Metcash said it has not been advised of any plans to change the current supply agreements it has with Drakes in Queensland.