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Australian Retail – How Can the Metcash Strategy and its Acquisition in Food Service Accelerate the Growth Opportunity for UK Food and Drink Exporters?

 

Woman in Grocery Store

Metcash is the largest Australian grocery wholesaler in the Australian market, supporting the independent grocery sector (~18% of the retail market). Established in 1927, Metcash is ASX listed and operating across three key business divisions: Food and Grocery, Liquor (Australian Liquor Marketers – ALM), and Hardware.

For UK-based businesses looking for strategic growth into the Australian grocery retail environment—and food service for Liquor—Metcash and its access into the independent sector differentiating on service, premium product ranges, and access to branded innovation can be an interesting channel. Metcash offers a different supply chain model than supplying into Coles Supermarkets or Woolworths.

Metcash Acquires Superior Food

On February 5th, 2024, [Metcash announced] the acquisition of Melbourne-based Superior Food, one of Australia’s largest food service providers serving over 20,000 outlets per week. In the same week, Metcash also made two other strategic acquisitions into the Hardware sector.

From its food and grocery investment, Metcash has increased potential attractiveness for UK food and drink businesses looking to supply the Australian independent sector.

About Superior Food

[Business News Australia reports] Superior Food recorded $1.3 billion in revenue in the 12 months between 31st October 2022 and 31st October 2023. This is reported with an underlying EBITDA of $43.8 million.

Superior Food is run from 23 branches across Australia. It utilises a total warehouse space of 80,000 square metres and manages a fleet of roughly 290 vehicles making an estimated 670,000 drops annually.

Improving Australian Retail Growth Markets

Grocery Shopping Basket

For Metcash to combine with Superior Food offers a compelling opportunity to expand within the growth market utilising an industry-leading service provider. Superior Food already commands an established national platform for Australia’s future growth.

The acquisition unlocks benefits of diversification, procurement savings, and range expansion. This encourages Metcash’s purpose of championing successful independents even further, something Metcash already does incredibly well.

Metcash and its three acquisitions are forecasted to synergise $19 million annually, with gradual additions to its profit margins.

At Prof., our on-the-ground observations suggest that as the two businesses start to align—especially with regards product sourcing—this will enable the new operating model to source greater volumes of innovative products. These are critical to support the role of the independents and expand the offer of higher quality products into the food service sector, potentially in different pack formats although the same formulations.

Whilst price sensitivity will continue to be the focus for end users—such as restaurants, QSRs (Quick Service Restaurants), and hotels—the ability to differentiate through premium ingredients, an expanded portfolio of products sourced with provenance, and quicker access to innovation will be important, as overall volume demand continues to increase.

How Does This Affect UK-Based Food and Drink Businesses Looking at Strategic Growth in Australia?

For premium brands looking initially outside the two major retailers—Coles and Woolworths—for product opportunities, take a wider view on the independent sector. Consider the increased opportunities across the combined market.

The Independent Sector is around 18% of the grocery market and Superior Food bring over $1.3bn of extra sales or volume demand.

What is the Opportunity for UK Food and Drink Businesses Targeting Growth in Australia?

Woman buying wine in grocery

There are many growth opportunities in the Australian retail market. With two main go-to-market strategies—Private Label and Branded—Metcash’s acquisition could set a stage for your food and drink business to target growth in Australia.

The Private Label Market

Private Label is experiencing significant growth, presenting food manufacturers with opportunities to expand their business. Competing on high-volume lines where you can offer efficiencies through procurement, automation, or volume remains a key opportunity. Retailers continue to source internationally to access better commercial performance and investments in price.

Additionally, understanding the growth channels, trends, and innovation requirements of the market enable UK manufacturers to offer access to turnkey innovation under the retailer’s Private Label offer.

Products developed and proven in other international markets can be easily adapted to the Australian consumer needs. Private Label is becoming increasingly important in the food service sector as the main distributors look to secure longer-term supply chains through differentiations.

The Branded Opportunity

Branded opportunities are also experiencing growth as new brands rapidly enter the market to fill the innovation gap. The Food Service sector needs change and must support clients who are quick adopters of food trends and eating experiences.

Recognising the innovation within the UK food and drink sector translates to an exciting opportunity for established UK businesses that operate a portfolio of brands and are innovating to gain market share in other highly competitive markets.

The high level of appreciation or trust between consumers in both Australia and the UK increases the opportunity to win. Understanding the competitive landscape is critical to unlocking these opportunities through the identification of product or range gaps and marketing messages to resonate with consumers.

Prof. Provides Food Consulting Services for Your Business

Towards the end of February 2024, our two major retailers—Coles and Woolworths—will be providing trading updates. We will digest and provide our interpretation of the updates alongside the outlook and opportunity for growth.

In an increasingly competitive market, being prepared is essential before approaching one of the key retailers or distribution providers. Understanding the competitive landscape, regulatory compliance, supply chain requirements, marketing strategy, and how to support the new business effectively are some of the key strategic notions to have considered.

Prof. Consulting Group

Prof. Consulting Group will help lead your business to success in the Australian food industry with its team of industry-leading experts and extensive range of services.

For more information or to discuss how Prof. Consulting Group can support your business, please visit https://www.profcg.com/contact/