Australia’s supermarket giants are on the verge of carving up the 287 outlets of beleaguered discount chain Franklins.
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A proposed break-up of the chain, announced today by Hong Kong based parents Dairy Farm International, will see the lion’s share of 120 stores go to independent supermarkets under the IGA trading banner through a divestment alliance deal with Metcash Trading. The country’s largest group, Woolworths, has agreed to buy 80 and Coles Myer is believed to be in discussion with Dairy Farm to guarantee its own share. Analysts are warning market watchers not to take today’s announcement as gospel, however, pointing out that the Australian Competition and Consumer Commission (ACCC) has yet to approve the deals.
The ACCC is notoriously emphatic that the domestic supermarket sector be the scene of increased competition and will block attempts by the larger chains to narrow the spectrum of rivals and increase their market share. Between them, Woolworths and Coles Myer already control 70% of the sector and the ACCC has admitted that its investigation into Franklin’s break-up will focus on the role of Woolworths.
Between 10 and 20 of the underperforming stores will be closed but with the more profitable stores the allocation of outlets must be carefully dealt with.
Professor Alan Fels, chairman of the ACCC, commented: “The ACCC is aware of the uncertainty surrounding the position of Franklins and […] it will complete its assessment of the competition implications of the proposed sale as quickly as possible. The principal competition issues are likely to be linked to the sale of stores to the major supermarket groups, Woolworths and Coles. The ACCC had expressed concern regarding an earlier proposal which involved the sale of a larger number of stores to Woolworths.”
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By GlobalDataIn January this year, the commission rejected Dairy Farm’s proposed plans to sell 135 outlets to Woolworths and 135 to independent chains, operating through Woolworths’ wholesale arm, Australian Independent Wholesalers. Analysts now believe that the ACCC will insist that Woolworths scale down this latest planned acquisition to just 40 or 50 stores.
The National Association of Retail Grocers of Australia also welcomed the break-up of Franklins stores but backed the ACCC, adding that the government should tighten competition laws and curb the market dominance of Woolworths and Coles Myer. Association spokesman Alan McKenzie commented that the sale could strengthen the sales and size of the independent sector, where there is scope to take control of more than the 120 stores already earmarked.
Franklin’s managing director Ian Cornell maintained however that the proposed role of Woolworths is essential in that it will provide an early cash injection: “Effectively it will be underwriting the larger sale to independents over the next few months.”
Franklins and Dairy Farm, which expects to reap more than A$300m from the sale, will be explaining the sell down plan to stakeholder groups within the next few weeks. The sale of the stores is expected to be finalised within the next six to nine months.
By Clare Harman, just-food.com editorial team
