Metcash Trading Ltd. History

Company Perspectives:

Our Mission Statement: to be the marketing and distribution leader in food and other fast-moving consumer goods. Our Values: championing the customer; our stakeholders are entitled to added value; responsibility and personal accountability; empowering our people and supporting our communities.

Key Dates:

1927:

Lebanon native Joe David sets up a retail store in Woolloomooloo, Australia; then shifts into discount retailing during the Depression.

1937:

Now with five stores, David sets up a wholesale business to supply stores.

1985:

The company establishes a Consolidated Liquor joint venture, which forms the basis of Australian Liquor Marketers.

1986:

Davids Export is created in order to enter Asian Pacific.

1988:

The company sets up the first Australian stores in the Independent Grocers Alliance network.

1994:

Davids Holdings goes public on the Australian Stock Exchange.

1995:

The company acquires Jewel Food Stores group, Independent Holdings, John Lewis Foodservice, and Campbells Cash & Carry.

1996:

QIW and Composite Buyers are acquired.

1997:

The David family sells out its holding to South Africa's Metro Cash & Carry, which eventually becomes the majority shareholder.

1998:

The Jewel chain is sold off amid restructuring to refocus on wholesaling operations.

2000:

The company changes its name to Metcash Trading Ltd.

2001:

The company acquires 120 Franklin stores

2002:

Stewart & Co is acquired to boost on-premises liquor distribution; a joint-venture agreement is formed to enter the Philippines as part of effort to develop a fourth business "pillar."

2003:

The company abandons the joint-venture and refocuses on its core Australian market.

Company History:

Metcash Trading Ltd. is Australia's top marketer and wholesale distributor of food, liquor, and other grocery items. Through its coordination of the Australian license for the Independent Grocers Alliance (IGA), Metcash is also at the head of the country's number three retail network, grouping more than 1,100 independent grocers across Australia. Metcash's operates through its three primary business "pillars": IGA Distribution, Campbell's Cash & Carry, and Australian Liquor Marketers (ALM). IGA Distribution operates eight distribution centers in Australia, supplying more than 14,000 food and grocery items to some 4,500 independent retail groceries, as well as coordinating marketing and distribution for the more than 1,100 stores under the IGA banner. Campbell's is the group's cash and carry arm, with 42 wholesale stores chiefly on Australia's east coast, carrying 12,000 items and serving more than 50,000 retail and restaurant customers. Australian Liquor Marketers is Australia's leading wholesale distributor of liquor, with 16 distribution centers. That subsidiary also has operations in New Zealand. Metcash, which posted nearly A$6.2 billion ($3.2 billion) in revenues in 2002, is also eyeing expansion into Southeast Asia, where it expects to establish a fourth business pillar. Formerly known as Davids, Metcash is majority controlled by South Africa's Metro Cash & Carry, which holds some 72 percent of Metcash shares. The company remains listed on the Australia stock exchange and is led by former Metro executive Andrew Reitzer as CEO.

Founding a Family Grocery Dynasty in the 1920s

Joseph David, a native of Lebanon, immigrated to Australia following World War I and set up his first retail shop in the town of Woolloomooloo in 1927. The Depression era provided an opportunity for David, who began selling discounted staple items such as bread and milk. The discount formula was a success, and David began to add new stores. By the mid-1930s there were five Davids outlets in operation. Each of these stores was headed by a member of the David family. In order to supply the growing network, Joe David set up a wholesale distribution business in 1937. That wing of the family-owned company quickly became its primary focus following World War II.

Davids brought a number of technological innovations to Australia's wholesale distribution industry. In 1955, the company became the first to use a computerized punch-card system to control inventory. In 1957, Davids' new distribution facility in Homebush was the first operation in Australia to use forklifts and pallets and a flow-racking system.

Innovation continued into the 1960s with the formation of Supa Valu, the country's first grouping of independent retailers under a united banner. The Supa Valu network adopted the purchasing model of traditional cooperative food groups, giving individual retailers greater purchasing power by pooling resources. The Supa Valu franchise later came under control of Foodland Associated Limited.

Joe David's son John David joined the family-owned business and became CEO of the company following his father's death in 1972. Under the younger David, the company, Davids Holdings Pty, grew stronger, and John David himself became an important member of Australia's grocery industry.

Davids continued to play the innovator role for Australia's distribution industry. In 1972, the company opened a new distribution facility in Blacktown. The site was one of the first to feature an automated materials handling and warehousing system, patterned after similar systems then being developed in the United States. In 1974, the company added a portable date entry system, another first in Australia. At the end of the 1970s, however, the company scrapped that system. Instead, it established a new computer-controlled distribution network built around a decentralized warehouse network in 1980.

In the meantime, Davids had been building up its operations in liquor wholesaling. The company first entered this business in the 1960s when it acquired wholesaler Harbottle Brown. After a number of name changes, Davids merged its wholesale liquor operation into the short-lived Consolidated Liquor, a joint venture with marketing conglomerate Elders, in 1985. Harbottle Brown subsequently evolved into an on-premises liquor services provider.

Davids pulled out of the Consolidated Liquor venture by the end of the 1980s, keeping only its operations in New South Wales and Victoria. Davids renamed its wholesale liquor business Australian Liquor Marketers, entering Queensland in 1988. ALM later acquired Consolidated Liquor's operations in Queensland, the Northern Territory, and New South Wales.

Ambitious Expansion in the 1990s

John David grew ambitious in the mid-1980s, becoming determined to extend the company's operations beyond Australia. Toward that end, the company set up a new subsidiary in 1986, Davids Export Services. By the beginning of the 1990s, the company had succeeded in setting up a distribution network across much of Southeast Asia, as well as China and the Philippines. Davids' export enterprise later came to include operations in New Zealand and the United States.

Davids also expanded its retail holdings, buying up the 25-store Clancy's convenience store franchise network in 1987. The company then grouped several more independent retailers it had acquired under the Clancy banner and by 1990 boasted 48 Clancy stores.

In 1988, the company extended its franchise holdings to the supermarket circuit when it acquired the Australian rights to the Independent Grocers Alliance (IGA) banner. Set up in 1926, IGA served as a buffer for independent retailers against the rising power of the large, integrated supermarket groups. Indeed, in Australia the largest groups--chiefly Woolworths, Cole Myers, and Franklins--had been growing rapidly since the mid-1970s, soaring to a market share of more than 60 percent. The threat to Davids independent-focused wholesale business led the company to step up its focus on building up the IGA network. Starting with just ten member stores in Australia, the IGA banner included nearly 60 stores at the start of the 1990s and later developed into one of the country's largest networks, with more than 1,000 stores.

In the 1990s, Davids was determined to counter the rising strength of Woolworths and Cole Myers with a drive to become the country's leading wholesale grocery supplier. In 1991, the company bought up wholesale collective Victorian Grocery Distributors (VGD), paying A$16 million. That acquisition made Davids the leading wholesaler in the eastern Australian region. VGD provided wholesaling services to some 200 member retailers, including a number of independently operated retail networks. The purchase raised Davids' annual revenues to A$3 billion, positioning the company to compete with Franklins for third place in the Australian market. The acquisition also gave a boost to IGA, which reached 100 stores the following year.

In 1993, Davids made a new push to expand into Southeast Asia, purchasing a 100,000-square-foot warehouse in Singapore. The company hoped to build an Asian base through a separate, privately held company, Davids Asia, an organization with revenues rivaling its main Australian business. In that year, the company set up a joint-venture with the U.S. firm Fleming Cos. Inc. in which Davids agreed to provide wholesaling services for Fleming's supermarket push into Southeast Asia. Meanwhile, back home, Davids continued to build up its wholesaling wing, as its IGA operation topped 150 stores. By then, the company was promoting several store banners--Festival IGA, Rainbow IGA, Foodtown, and Welcome Mart.

Davids, joined by John David's son Jeff David, now prepared to step up its growth in a drive to become not only Australia's largest wholesaler but a major retailer as well. The company laid the groundwork for this growth with a public listing on the Australian Stock Exchange in 1994.

Backed by shareholder funds, Davids went on a three-year spending spree that nearly ruined the business. The company's first major acquisition was the A$115 million purchase of Sydney-based Jewel Food Stores. That purchase was followed in 1996 by the addition of QIW, based in Queensland, and Composite Buyers, based in Victoria. Other store networks and wholesale operations added during this time included Independent Holdings, John Lewis Foodservice, and Campbells Cash & Carry.

By 1997, Davids had swelled into a massive A$8 billion company capable of competing with Australia's big retail groups. However, Davids had grown too large too quickly and consequently entered a financial slump. Unable to integrate its operations, the company's losses mounted, topping A$240 million, as it approached the brink of bankruptcy. By 1997, John David had been forced to step aside as executive chairman, and his son Jeff, who had been serving as chief executive, was demoted to a lesser role in the company.

South African Firm Acquires Davids

As John David told a meeting of institutional investors, "We have been successful in facing up to changes in the industry for over 70 years and, despite competitive pressures, we have proved to be great survivors." Yet the company would have to survive without the David family. In December 1997, the family sold nearly 15 percent of the company to South Africa's Metro Cash & Carry.

Metro continued to build up its stake in Davids, eventually reaching more than 72 percent of shares. That position enabled it to steer Davids into a far-reaching restructuring drive that pared the company back to its core wholesale distribution operations. Spearheading the company's restructuring was Andrew Reitzer, who had been a top executive with Metro. Reitzer set to work restructuring the huge array of supermarket names operating under the IGA banner. Despite some resistance from a number of retailers, who remained committed to their store names for sentimental reasons, the conversion process was largely successful.

By the beginning of the 2000s, more than 1,000 stores sported the IGA banner, placing the network at number four in the national retail scene, just behind Franklins. By then, too, the company had changed its name, becoming Metcash Trading Ltd. in 2000.

Having already divested itself of Jewel, Clancy, and other retail holdings, Metcash sold off its remaining non-core operations, including John Lewis Foodservices, in 2001. Now focused entirely on wholesaling, through IGA, Campbells Cash & Carry, and Australian Liquor Marketers (ALM), Metcash sought new opportunities for growth in Australia.

In 2000, ALM was expanded with the purchase of Queensland-based Stewart & Co, which also enabled the company to add to its on-premises--that is, restaurants and bars--supply services. The following year, Metcash's fast-growing IGA Distribution operation achieved a new milestone when it agreed to take over 120 stores from the failing Franklins chain.

That acquisition positioned Metcash firmly in the number three spot in the country's supermarket industry. The following year, Metcash further secured that status by signing a supply agreement with the FoodWorks Supermarket Group, active in Victoria and New South Wales.

The company then returned to its aborted international expansion plans, forming a joint-venture in October 2002 with the Philippines' Suy Sing Commercial Corporation, the country's leading food distributor and wholesaler. Metcash paid A$73 million ($40 million) to acquire 65 percent of Suy Sing's wholesale network, which included four distribution centers in the Manila area. The move came as part of Metcash's effort to develop a fourth business pillar.

The company's Asian expansion was once again put on hold, however, when it abandoned its joint-venture offer in 2003. In the face of an uncertain global economic climate, Metcash decided to limit its focus to developing its existing operations in Australia. Inheriting the more than 75-year legacy of Davids, Metcash set out to prove itself a worthy successor.

Principal Operating Units: IGA Distribution; Campbell's Cash & Carry; Australian Liquor Marketers.

Principal Competitors: Coles Myer Ltd.; Woolworths Ltd.; Caltex Australia Ltd.; Franklins Holdings Ltd.; Foodland Associated Ltd.

Further Reading:

• Brannelly, Louise, "Grocer Rattles the Big Chains," Daily Telegraph, April 23, 2001, p. 60.
• Kemp, Shirley, "Why Australia Is Such a Tough Nut to Crack," Moneyweb, December 4, 2001.
• McCullough, James, "Retailer Dares to Take on Big Two," Advertiser, June 11, 2002, p. 24.
• Thomson, James, "Metcash Now More Than a Supermarket Minnow," BRW, April 27, 2001.

Source: International Directory of Company Histories, Vol. 58. St. James Press, 2004.