Metcash will axe almost 10 per cent of its workforce as it undergoes a drastic restructure amid a bruising price war with its supermarket rivals.
The company behind brands such as Campbells Cash and Carry and IGA admitted on Tuesday that the price war between rivals Coles and Woolworths had left it fighting to compete, especially in rural areas, leading to a big squeeze on margins and profits.
Chief executive Andrew Reitzer said 65 per cent of the 478 redundancies resulting from the restructure would be from its Campbells business, which had languished because more customers used service stations rather than traditional convenience stores.
The other 163 positions being cut are in Metcash’s corporate offices.
“The traditional market has been very hard hit with everything that’s going on with the marketing war by the chains, milk for a dollar etcetera, and we just cannot afford these 15 Cash and Carry stores to service that market,” Mr Reitzer said.
The restructure plan is aimed at ending duplication and improving efficiency, and Metcash is to merge its IGA distribution, merchandising, fresh and Campbells businesses into one entity named Metcash Food and Grocery.
The company’s West Australia-based food distribution business Foodlink has been sold for a confidential sum to Bidvest, which will take on the 90 Foodlink employees.
Mr Reitzer said Metcash would be left with five Campbells convenience store distribution warehouses and 18 Campbells Cash and Carry businesses.
He said 15 Franklins problem stores would be exited or sold to parties other than IGA.
Last year, Metcash bought 80 Franklins stores for $215 million.
It has since sold 34, a further 10 store sales are close to finalisation and the divestment of another 21 stores are in progress or under consideration.
Mr Reitzer said the tough trading conditions resulted from continued price deflation, which was crimping margins, and a value-conscious consumer who increasingly purchased on discount.
He said a breakdown of the Campbells and Franklins store closures would be kept confidential while affected staff were informed and negotiations with landlords continued, respectively.
Metcash also flagged the closure of some Cornetts and Walters stores in Queensland.
The businesses were mainly in tourist areas where there had been a dramatic fall in tourist numbers after recent natural disasters, and were also being hampered by deflation.
“The slide just doesn’t show any sign of turning around,” Mr Reitzer said.
“We will immediately shut five of their stores, sell approximately 18 of their stores to other IGA retailers as we believe they will perform better in their hands, and hopefully end up with a Cornetts business somewhere in the region of 20 to 25 stores.”
Metcash will book an impairment charge of between $75 million and $90 million for its two Cornetts and Walters joint ventures.
The restructure would result in a one-off charge of $34 million to $43 million, to be included in the company’s results for fiscal 2012 that ends on April 30.
Metcash has maintained its guidance for low- to mid-single digit underlying earnings per share growth in the year to April.
Its shares closed down 20 cents, or 4.65 per cent, at $4.10.
