FoodWorks shows Mitre 10, Retravision how it's done

Mitre 10 was one of a number of retail powerhouses that built strong brands and store networks as cooperative companies.

Now Mitre 10 has been relegated to a somewhat distant number two in the market as Bunnings Warehouse stores have become the dominant player in hardware.

Some of the other cooperative company powerhouses of days gone by included Retravision, Toyworld, Amcal Chemists, Guardian Chemists and a number of grocery chains.
Most of the old co-ops have gone, the structure that proved to be a successful model to nourish and build independent retailers eventually ran out of gas.

Co-ops were too inflexible with tens or hundreds of managing directors trying to determine the direction of the company and often adopting conservative business positions and fighting change.

More importantly, the retail co-ops, like many similar models in the agricultural industries, struggled for new capital to expand or to implement new initiatives that would enable them to match it with the chains rolling out their national store networks.

Mitre 10, Retravision, Toyworld and Amcal all developed new generation store concepts that were ahead or in line with market trends.

Retravision and Toyworld's model go back to the 1980's while Mitre 10 and Amcal's formats are more recent.

The new formats envisaged corporate stores or external investment but the Retravision 80s model store, Toyworld's Zig Zag and Mitre 10's Mega all effectively came to grief because they were largely unworkable in a cooperative company.

Apart from the funding issues, there were inevitably seeds of discontent from member retailers, owners under the co-op structures, about the company competing with its members on high street.

Amcal's model was as much a victim of pharmacy regulation as of the company structure. Interestingly, while Amcal still has the most number of shopfronts across the country, Terry White Chemists is probably now a stronger retail brand.

Toyworld has been subsumed by Associated Retailers. Amcal and Guardian by Sigma Pharmaceuticals which has struggled to develop a coherent retail strategy in the past three to five years, virtually abandoning its latest retail model, the combatant to Terry White, which was called Amcal Max.

Retravision is an interesting company, a federation model, that last year saw the New South Wales division collapse and the east coast businesses face some heavy weather while the West Australian-based operation posted utopian sales results.

The smart money says rationalisation in the electrical retailing category is not yet at an end and there are continuing doubters about the future of the current Retravision business model.

There is even more scepticism about the prospects of BSR, the Brisbane-based buying group that has done the phoenix bit and risen from the rubble of Betta Stores that collapsed last year after - you guessed it - developing a new store model and creating a portfolio of corporate outlets that proved disastrous.

Mitre 10 is in a better position in the marketplace but is still hampered by its business model and the legion of managing directors expert in everything from paint to power drills and plants to plasterboard. It has attempted to introduce new investment capital, but the business structure has constrained the ambitions and was no doubt a key issue when the retailer proposed marriage to the listed company, Danks Holdings. This was truly a catholic and Protestant impasse.

No doubt Mitre 10 has more than a passing interest in the transformation of the FoodWorks supermarket company from a cooperative structure to new shareholder business model.

FoodWorks is the successor to the feisty Tuckerbag banner group which dominated Victorian retailing and was never tamed when David's Holdings acquired the Composite Buyers wholesale warehouse.

All of the other cooperatives in the grocery industry have been subsumed by Metcash and now sport the IGA banner with the exception of FoodWorks, Tasmanian Independent Retailers and the Farmer Jacks store network which has now aligned with FoodWorks in any event and, it might be argued, Spar Australia.

FoodWorks is clearly to number two independent supermarket banner in Australia behind the Metcash-owned IGA and it has the distinction of running its own operation with Metcash supplying stock under a long term contract.

FoodWorks has been steadily and successfully building its business and brand over a number of years, particularly in the past three years since it merged with the Queensland-based Australian United Retailers.

But the company's board and management and its competitors were always acutely aware that FoodWorks was heading for a brick wall because of the limitations of its cooperative structure.

From the outset, FoodWorks took a different tack to the grocery banners of the past with external non-food industry directors elected to the board and a patient process to develop a new business model that had the support of the member retailers.

Successful independent retailers, Arthur Hayes as CEO and Jack Scanlan as chairman worked with the company's board to fashion a viable retail banner but then appointed Peter Noble to succeed Hayes and lead the company into a brave new world that has been foreign and even hostile territory to other cooperatives.

Noble and the board invested in research, strengthened the executive team and undertook extensive consultation with their FoodWorks retailers on options for future survival let alone growth.

The options included external capital including private equity funds, debt and a public listing but FoodWorks retailers wanted to keep control - as stated previously, a feisty lot in days gone by and still today.

The FoodWorks retailers agreed to restructure the company and stumped up more than $10 million in internal funding, exceeding a prospectus target, to fund growth including backroom systems and IT and communications, merchandise range development, marketing initiatives and store upgrades and network expansion.

FoodWorks has designed a new retail format that is calls the 'perfect store' but it won't open corporate outlets, the new format is a model that independent retailers will be encouraged to adopt when they refurbish, relocate or open in new sites.

The new structure has already unlocked other opportunities, including developer offers of new store locations and additional store development investment.

FoodWorks has also taken an important step in locking in around 90% of its volume to long term unity agreements and the general confidence in the banner has stemmed the chequebook acquisitions of the chains, Coles and Woolworths, albeit no doubt with a little political muscle help from a more hard-nosed Metcash in the past two to three years.

Big changes for the banner group but, demonstrating retailer acceptance, no challenges or casualties for FoodWorks directors when the annual meeting voted on board elections this month.

FoodWorks has morphed from a cooperative company model to a structure that is more flexible and dynamic. A structure that has enabled the banner match Coles and Woolworths and that opens up options for the future rather than closes them off.

The remaining cooperative companies in the retail industry will no doubt take a keen interest in FoodWorks progress going forward.

Most will wish they had had the same resolve to pursue change in their business model because realistically 700 supermarket managing directors were just as hard to convince of the need to change as hardware MDs, electrical appliance MDs or pharmacy MDs.

www.foodweek.com.au