CAPE TOWN - The Competition Tribunal on Monday cleared the way for Shoprite (JSE:SHP) to acquire the franchise unit of unlisted rival, Metcash Trading. This is subject to certain provisions, specifically that no jobs are lost.
Metcash’s franchise unit includes the licence to franchise and distribute to Seven Eleven and Friendly stores. It also includes Friendly Distribution, which consists of various large distribution centres located throughout SA to provide support to the franchise stores within the group.
The deal was approved by the competition authorities as it is unlikely to lessen competition in the various markets impacted by the merger. But following employment concerns raised by Saccawu Metcash undertook to find alternative employment for employees yet to be retrenched and to do the same for employees who have applied for voluntary retrenchment, unless Metcash accepts their applications.
The deal ties in with both companies’ strategies. Metcash CEO Peter Dodson is driving a restructure at the ailing wholesaler. In order to return the company to profitability he is closing non-performing stores, at least 56 of them, including Metro Cash & Carry and Trade Centre outlets. In the process about 1 000 staff will be affected and some retrenched. They are not protected by the Competition Tribunal provisions. Once completed about 115 Metro Cash & Carry stores will remain in SA.
At the same time the company plans to roll out new hybrid stores – which service both retail and wholesale customers. “What Dodson does not need right now is the distraction of a franchise business,” says Nedcor securities analyst, Syd Vianello. “He is focused on getting what is left of wholesale business right. The franchise operation was an irritation in the long term.”
For its part Shoprite appears to have a new found interest in franchising. The transaction will provide it with a further platform to grow its business and franchisees exponentially, both in numbers and in turnover,” Shoprite deputy MD Carel Goosen, said in March when the deal was announced.
The Seven Eleven and Friendly franchise business will be integrated into the OK franchise division (OKFD), which currently has 273 members. OKFD franchises include the convenience store brands OK Foods, OK Grocer, OK MiniMark, OK Value, wholesaler Megasave and the liquor store brand Enjoy in SA, Namibia and Botswana.
Shoprite tried to buy the business from the estate of George Hadjidakis a few years ago, but was beaten to it by Metcash.
Vianello believes the rapidly evolving retail environment would have made the deal more desirable now. “To me this deal was done to fruStrate the growth ambitions of Massmart retailer Cambridge.” says Vianello. “It is possible that Shoprite is fearful that Cambridge will try to buy other bigger food stores – remember franchisees are not beholden to their brand.”
The purchase price was not disclosed. But certainly Shoprite will be paying less than they would have offered for the business in Hadjidakis’ day. Vianello estimates that Shoprite paid no more than R50m for the acquisition. “Turnover was not that high across the franchises,” he says.