Retailers' push into townships crushes Metcash

Metcash CEO Peter Dodson said yesterday the group's financiers had "run out of patience" with the company, which had now started winding down. From 59 stores earlier this year, Metcash now has only about 12 stores left to sell as years of poor trading conditions and sales declines led to its financial backers refusing to extend further credit.

"If I had more time and lots more money, something could have been done to save the company. But much has been achieved in the past two years. It did have an impact, but the banks had already spent too much," Dodson said. "It's a sad thing."

In 2005, the company boasted sales of about R16bn, but as more and more retailers such as Shoprite and Pick n Pay set up in wholesalers' traditional markets, sales growth stalled.

As these retailers gained momentum, street vendors and spaza shops that purchased mainly from cash-and-carry-type stores were forced to close.

Analysts have suggested that Massmart began developing its Cambridge store format (catering to the lower end of the market) as it believed there was little or no growth in the wholesale model.

Metcash delisted from the JSE in 2004 in a management buyout worth R1,3bn. In 2010, it announced a raft of fundamental changes that saw it cut more than R600m of debt, recapitalise and take on a new business model to draw in wealthier shoppers. Many have suggested it was too late.

It converted about 50 of its 138 corporate-owned Cash 'n Carry and Trade Centre stores into a hybrid model serving wholesale and retailer customers.

However, it was forced to further rationalise last year and sold its franchise division, including Metcash Seven Eleven, and part of its Friendly Distribution division to Shoprite for an undisclosed amount. About 57 more stores were closed to help the company "focus on its core business". Now, a year later, Dodson said the business was winding down "well" and he was confident remaining stores would be sold soon.

Contracts and creditors were being dealt with and only people who opted to take a retrenchment package had been retrenched, he said.

He would remain in the wholesale trading business, Dodson said, but would not give any more details.

Chris Gilmour, an analyst at Absa Investments, said the cash-and-carry business was dying in SA. "At a time it gave small traders access to goods, but now townships are not barren, there are malls, and there is no need for them."

Source: Business Day