Normal
My view of Metcash is as follows:-IGA: Even if sales hold up their margins will go down over time due to increased price competition (which will only accelerate) from Aldi and Costco. The same thing will happen to Woolworths and Coles over the next 5-10 years but perhaps to a lesser extent. Also in my opinion its basically a larger fancier version of a convenience store rather than a true supermarket (except for the mega IGAs). They should only operate in high foot traffic areas where there is no supermarket nearby. A good example of a well placed IGA in Sydney is the one at UNSW (its a 15-20 minute walk from the nearest Coles or Woolworths) so you have plenty of University students coming in to buy a few things (most still go to Coles or Woolworths if they need to do major shopping) due to the convenience. IGA at petrol stations can also be competitive because Coles Express (at petrol stations) and Woolworths at petrol stations charge higher prices than their normal supermarket stores.-Mitre 10: They will never be an effective competitor to Bunnings. The only stores that can do well are the ones that operate in suburbs where there is no Bunnings. Given Bunnings continued gradual store roll-out over time there will be fewer and fewer locations where they could be open. A good Mitre 10 is one that is in a regional area that is too small in terms of population for a Bunnings to bother opening or a crowded inner city suburb of a capital city CBD where there is not a big enough floor space (at a reasonable rent) for a Bunnings to open. For example in Sydney there is a Mitre 10 in Bondi-Junction, two in the CBD and one in Paddington all owned (as a franchisee) by the same guy. They are doing relatively well in those locations because Bunnings can't open nearby due to their not being an empty site/store large enough and with a reasonable level of rent for them to open a store, coupled with the fact that the nearest Bunnings store is too far away for some people too bother going. Its basically a niche business that should not try and compete with Bunnings head on. It will never be a 1000 store business. Any attempt to expand the store footprint greatly will likely result in losses from trying to take on Bunnings head on. In my opinion Mitre 10 is the sort of business that would do well with maybe 100 - 200 stores strategically placed throughout Australia and New Zealand and no more.Basically its main earners of IGA and Mitre 10 are niche business that can only support a very limited store footprint. They over-expanded and got themselves into trouble. This type of business is better off as a private company where it doesn't have the pressure to grow into locations it shouldn't. Just like the pressure for growth induced by being a public company caused Dick Smith to open too many stores first under Woolworths then continued under private equity which caused it to go under (Dick Smith said so in a TV interview this year that it was his opinion that dick smith would have been a viable business with a smaller number of stores).
My view of Metcash is as follows:
-IGA: Even if sales hold up their margins will go down over time due to increased price competition (which will only accelerate) from Aldi and Costco. The same thing will happen to Woolworths and Coles over the next 5-10 years but perhaps to a lesser extent. Also in my opinion its basically a larger fancier version of a convenience store rather than a true supermarket (except for the mega IGAs). They should only operate in high foot traffic areas where there is no supermarket nearby. A good example of a well placed IGA in Sydney is the one at UNSW (its a 15-20 minute walk from the nearest Coles or Woolworths) so you have plenty of University students coming in to buy a few things (most still go to Coles or Woolworths if they need to do major shopping) due to the convenience. IGA at petrol stations can also be competitive because Coles Express (at petrol stations) and Woolworths at petrol stations charge higher prices than their normal supermarket stores.
-Mitre 10: They will never be an effective competitor to Bunnings. The only stores that can do well are the ones that operate in suburbs where there is no Bunnings. Given Bunnings continued gradual store roll-out over time there will be fewer and fewer locations where they could be open. A good Mitre 10 is one that is in a regional area that is too small in terms of population for a Bunnings to bother opening or a crowded inner city suburb of a capital city CBD where there is not a big enough floor space (at a reasonable rent) for a Bunnings to open. For example in Sydney there is a Mitre 10 in Bondi-Junction, two in the CBD and one in Paddington all owned (as a franchisee) by the same guy. They are doing relatively well in those locations because Bunnings can't open nearby due to their not being an empty site/store large enough and with a reasonable level of rent for them to open a store, coupled with the fact that the nearest Bunnings store is too far away for some people too bother going. Its basically a niche business that should not try and compete with Bunnings head on. It will never be a 1000 store business. Any attempt to expand the store footprint greatly will likely result in losses from trying to take on Bunnings head on. In my opinion Mitre 10 is the sort of business that would do well with maybe 100 - 200 stores strategically placed throughout Australia and New Zealand and no more.
Basically its main earners of IGA and Mitre 10 are niche business that can only support a very limited store footprint. They over-expanded and got themselves into trouble. This type of business is better off as a private company where it doesn't have the pressure to grow into locations it shouldn't. Just like the pressure for growth induced by being a public company caused Dick Smith to open too many stores first under Woolworths then continued under private equity which caused it to go under (Dick Smith said so in a TV interview this year that it was his opinion that dick smith would have been a viable business with a smaller number of stores).
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