Metcash’s largest wholesale supermarket, Drakes, is going out on its own, with its departure from the group set to cost Metcash around $270 million in sales.
On Thursday afternoon, Drakes officially opened its own $125 million, state of the art distribution centre in South Australia, to support a move to self-supply.
The DC in Edinburgh North will handle supply of the family owned grocery retailer’s 37 stores in South Australia, with opportunity to expand to its Queensland stores, which are currently under a five year supply agreement with Metcash, and independents in the future.
Drake’s managing director, Roger Drake, told Inside FMCG on Wednesday that he departs the Metcash/Foodland Group “with mixed emotions”, but said it was necessary to be competitive as new players like Kaufland enter the market.
“We know we need to be more competitive; the market is changing. We believe that we’ve got to be vertically integrated. We’re a privately listed company and we think we can be more efficient,” Drake said.
“Foodland has been part of my life for 45 years… and I believe that Foodland is an icon brand, but at the end of the day, for us to remain competitive, to be able to give our consumer the right goods at the right price, then we’ve got to just strip costs out of the business and unfortunately, it was with mixed emotions that I left the Foodland Group.”
Speaking about the future of the supply agreement with Metcash in Queensland, Drake signalled that it could come to end if the price isn’t right. “They still have to be cheaper,” he said.
Drakes is Australia’s largest independent grocery group, with 62 stores across South Australia and Queensland. The retail boss said the decision to open their own DC is a risk but he said “life is a challenge”.
“This is probably the biggest decision that’s ever been made by anybody in the independent trade,” Drake said. “We squirreled away for 45 years thinking that there might be an acquisition of a group but never before did I believe that we would build a state of the art distribution centre,” he said.
Drake said the aim of the self-supply model is to support local suppliers by building a direct relationship and cutting out the middle-man, allowing the retailer to provide the best prices for consumers.
“I think [suppliers] have probably been saying that Metcash’s structure is too top heavy, but never before have they had a choice, they’ve only had one wholesaler in the market; you’ve got the chains and you’ve got Metcash. All of a sudden, for the first time, the retailers will have an option and the supplier will have an option on who they supply,” he said.
“I’m a great believer, and always have been, in ‘you can’t take out of this world unless you put back’. My wife is buying a corporate box in heaven, we just hope it’s big enough for all of us. We work and she gives it away. But that’s the way we think. We are a frugal business but still run it as a family business with a corporate culture.”
The distribution centre, fully funded by Drakes Supermarkets, stands at 55,000 sqm and houses $15 million worth of robotics and 23,000 lines of products.
The robotic system is the first of its type in production, picking 1,000 individual products per hour with the shuttles picking 650 per hour, using a “goods-to-person” configuration, to ensure accuracy of store orders and reducing physical demands on staff and risk of injury.
Drakes’ management team visited five different countries to obtain greater insight into the advanced robotics, distribution and logistics systems ahead of fitting the centre.
“We literally traveled the world, we went to Europe, we looked at all the systems we possibly could. Trying to strip costs out of the of the equation, was our whole purpose.”
While automation is a big part of Drakes’ strategy, unlike Coles and Woolworths, Drakes isn’t pinning its hopes on online. Roger Drake told Inside FMCG that it more of a necessity than a profitable avenue for the business.
“Will we make any money out of online? Absolutely not. Our cheapest labor is our customer. But we know that we’ve got to have an online operation. We were slow starters in online, there’s no doubt about it, we haven’t had the resources that the chains have thrown at it. The delivery is still a cost that we haven’t been able to get under control.”
Drakes’ distribution centre is located in the northern part of Adelaide where Holden recently shut operations. It will employ a further 140 full-time staff, adding to its 6,000+ workforce, with the first trucks to leave the distribution centre next week.
Drakes will also utilise its fresh fruit and vegetable distribution centre in Pooraka and a meat distribution centre in Beverley to support self-supply.
Point of difference
Drake said the key point of difference that they can offer is brands.
“The consumer does want a choice. Our point of difference is instead of having house brands we will be a house of brands,” he said.C
“We’ve never been a big generic supplier, but we know we’ve got to have them. We’re about brands. You go into the chains and all you see is their house brand and everybody says they’re growing, well I suppose when 50 per cent of their range is in house brands and that’s all you can see, well no wonder it’s growing.”
Drake said he doesn’t “believe” in own brands because he says a lot of the product is made overseas.
“[Brands] create R&D, they put money back into the community, all generics do is [act like a] parasite. They don’t do the innovation… they figure out what range is selling and then copy it.”
“We need to keep supporting Australian people, we’ve got some unbelievable family icon businesses in South Australia, Golden North, Bickfords, South Australian icons. Every major suppliers has been a fantastic support to us.”
Until now, Drake’s accounted for 3.5 per cent of Metcash’s food and grocery sales. Inside FMCG contacted Metcash for comment on the departure of Drakes but did not receive a response ahead of publication.