Deregulating Western Australia’s shopping hours will significantly impact the earnings capacity of Foodland Australia Limited, which has already struggled to grow grocery sales in Australia this year.
Deregulating Western Australia’s shopping hours will significantly impact the earnings capacity of Foodland Australia Limited, which has already struggled to grow grocery sales in Australia this year.
According to Bell Potter Securities, if WA’s consumers give the green light to extend retail trading hours in next year’s referendum then FAL is likely to lose $16 million in wholesale earnings.
That equates to 35 per cent of the group’s current wholesale earnings and 5.3 per cent of FAL’s earnings before interest, tax and amortisation.
This year FAL’s wholesale division represented 30 per cent of the group’s profit after tax.
That Bell Potter Securities finding is based on estimates that independent supermarkets, which in the main purchase produce from FAL, will lose 10 per cent of sales to the major supermarket operators in WA.
The Bell Potter report states the losses will be partially offset by gains made by Action, yet in its conclusion says FAL is at risk of being in the middle-market and may lack the critical mass to sustain the business.
DJ Carmichael research analyst Wendy Chesson said FAL’s wholesale division was under pressure and that deregulating trading hours would likely negatively impact the division’s earnings.
FAL’s wholesale sales dropped 11.2 per cent from 2003 levels to account for $45 million.
According to FAL’s recent end-of-year earnings announcement, the poor result was reflective on a competitive trading environment and the loss of a large food service customer.
FAL expects to reverse the trend because of new franchise arrangements, the elevation of Foodland franchisees to the Supa Valu brand and the petrol offer now available to consumers.
Ms Chesson suggested one reason for the fall in wholesale earnings could be suppliers cutting deals directly with franchisee owners.
However, a Dewson’s franchisee, who declined to be named, suggested while many franchisees had struck deals with suppliers this year, it was because of FAL’s poor transition of its wholesale administration to Melbourne rather than trying to gain better prices.
The franchisee said earlier this year Dewson’s store owners had product supply problems because FAL’s wholesale division’s “right hand didn’t know what the left hand was doing”.
“During that time there was a trend toward shops saying we can’t rely on FAL so we have to find a way of making it work and, as a result, moved away from FAL.
“It wasn’t necessarily cheaper because FAL does a good job of negotiating prices on bulk but it was a way to guarantee stock.”
