Franklins sale cut to please watchdog
Have a nice day ...the Fresh Food people will take over Big Fresh. Photo: Narelle Autio.
By Cosima Marriner
The Hong Kong-based owner of lossmaking supermarket chain Franklins is confident of winning approval from the competition watchdog for its revised $300 million sell-off despite the deal strengthening Woolworths's already dominant position.
Dairy Farm International yesterday revealed plans to quit Australia by selling 80 stores in the Franklins group to Woolworths and using those proceeds to underwrite the purchase of 120 smaller stores by independent retailers.
The Australian Competition and Consumer Commission will spend a month assessing the impact of the deal, having rejected an earlier proposal for Woolworths to buy about 130 stores.
Franklins managing director Mr Ian Cornell said Dairy Farm had made "major concessions" by limiting the number of stores to be sold to the major players. "We framed this submission around our discussions with [the ACCC] so we would be very hopeful this proposal would be accepted," said Mr Cornell.
Mergers commissioner Mr Ross Jones said: "We're losing the third retail grocery force. It depends whether a whole lot of little guys can effectively provide the same amount of competition." The ACCC has already identified locations where Woolworths would be the only supermarket operating if the Franklins sale proceeds.
Mr Cornell refused to say how much Woolworths would pay for the 80 stores, which include the 25 Big Fresh outlets.
Through an alliance with grocery wholesaler Metcash Trading, 120 of the 287 Franklins stores will be sold to independent retailers. The sale will see $2.38 billion in retail food sales transferred to the independents.
Metcash chief executive Mr Andrew Reitzner hailed the deal as a "once in a lifetime opportunity" for independent retailers to increase their share of the $61 billion that is spent on food, groceries and liquor each year in Australia. "This allows independents to redress the balance of market power in the retail food industry," he said, noting that buying power and distribution economies of scale would improve.
Dairy Farm expects to recoup $300 million from the sale of the supermarket chain, but will still have to write down a "small" portion of its carrying value.
Dairy Farm has spent more than $160 million in the past two years trying to rejuvenate the 60-year-old Franklins business. It wrote down the value by about $220 million after the chain lost $123 million last year.
"While many Franklins stores are profitable, the Franklins business itself is not sustainable without substantial rationalisation and significant further investment which Dairy Farm cannot justify," said Mr Cornell.
At least 10 Franklins stores will close. Dairy Farm is in discussions with other operators, including Coles Myer, over the sale of the rest of its stores. Analysts said that Coles Myer, at one stage in talks to buy Franklins's South Australian and Victorian stores, had been outmanoeuvred by Woolworths. West Australian chain Foodland has expressed interest in the Queensland and northern NSW Franklins.