Trevor Coates is determinedly carving out new territories for Australia's Foodland, as Elaine Watson reports
Trevor Coates likes a good scrap. Which is lucky, because just weeks after becoming group MD at Australia's Foodland Associated Limited (FAL) in 2000 he plunged head first into a battle with regulators over New Zealand chain Woolworths. The legal wrangle had the industry on tenterhooks for nearly two years, but it was a small price to pay for getting his hands on Woolworths, which took Foodland's share of the New Zealand market to a cool 40%.
"It was a fascinating experience," says Coates, best known in his former incarnation as managing director of Aldi UK. "But we were tenacious in making sure we got that business."
He was equally tenacious in ensuring that Foodland dubbed "Australasia's sleeping giant" had a place at the table on home turf in Australia. The following year Dairy Farm International put its 287-strong discount chain Franklins on the market. When the stores were finally shared out under the watchful eye of the Australian Competition and Consumer Commission, South Africa's Pick 'n Pay and domestic giants Coles and Woolworths got the lion's share. But Foodland snapped up 36 stores, boosting its buying power and giving it a foothold in Queensland uncharted territory for the Perth-based group.
The fact Coates' former employer Aldi widely tipped to snap up Franklins steered clear, came as no surprise, he says: "Aldi prefers to grow organically. As a private company with deep pockets, it can afford to take a long-term view of markets if that is the price it must pay for purpose-built facilities."
Meanwhile, Foodland goes from strength to strength with a far broader proposition than Aldi, says Coates. Eight to 10 new Action [company owned] supermarkets a year will be built for the foreseeable future, while new franchise opportunities are being explored, including a new convenience format. The immediate priorities, however, are driving efficiency through smarter purchasing, factory gate pricing, and better communications with suppliers to reduce inventory, free up capital and drive availability.
Not to mention aggregating the buying functions across Foodland's businesses, and integrating the Franklins stores in Queensland.
Like the UK, there are a lot of single person households, and a lot of women who work and have less time to prepare meals. But this has not manifested itself in aisles and aisles of ready meals, says Coates. "Social structures are changing, but the fresh food here is so much better, and so much cheaper. The price of fresh food in the UK is staggering."
Pressure on the supply chain in a huge country
While EDLP has had some impact, high/low remains the dominant pricing/promotional model, which can put pressure on the supply chain, he admits. "Generally speaking, there are a lot more out-of-stocks than in the UK.
"Freight costs here are immense. There are some stores in the north-west that take two to three days to get to by road."
However, the logistical challenges of distributing goods across a country spanning thousands of miles and serving just 20 million people are not entirely to blame.
Most problems boil down to poor communication with suppliers. "We all need to upgrade IT to help us improve in this area, as well as space planning and category management," he says. And, as in the UK, Aussie retailers are trying to get suppliers to "open their books and break down the costs of doing business".
The largest part of Foodland's business in Australia is in supplying the independent sector which is not under the same pressure as it is in the UK, even though market leaders Coles and Woolworths probably have more than two-thirds of the market between them.
"Our franchisees own stores up to 30,000 sq ft, and I would say the quality far exceeds that in the UK."
Unusually, franchisees and other independents supplied by Foodland have access to the same Signature own label range as Foodland's corporate stores in a bid to drive volumes and gain leverage with suppliers.
The fact Tesco, Wal-Mart and Ahold did not see Franklins as an entry vehicle into Australia came as no great surprise to Coates. True, he says, there are the obvious attractions of the market, given the shared language, the cultural fit and the quality of the manufacturing base.
"But let's face it, there are 20 million people in Australia and 3.8 million in New Zealand. In Indonesia, there are 250 million. Where would you go?"
If someone wanted to buy the number one or two player in Australia, they would have to pay a 20-30% premium on the share price, he claims. "As a public company, I'm not sure the shareholders would be very enthusiastic if you had to make an acquisition at a huge price/earnings multiple in a market like this.The market here doesn't have the density and longer term potential some other markets have. I suspect it is some way down the shopping list."
If Australia is not regarded as a land of unbridled opportunity by Tesco or Wal-Mart, there is still plenty of scope for domestic players like Foodland to make progress, he insists. "The market is by no means saturated, and there are substantial opportunities for us to expand in Western Australia and Queensland."
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Trevor Coates likes a good scrap. Which is lucky, because just weeks after becoming group MD at Australia's Foodland Associated Limited (FAL) in 2000 he plunged head first into a battle with regulators over New Zealand chain Woolworths. The legal wrangle had the industry on tenterhooks for nearly two years, but it was a small price to pay for getting his hands on Woolworths, which took Foodland's share of the New Zealand market to a cool 40%.
"It was a fascinating experience," says Coates, best known in his former incarnation as managing director of Aldi UK. "But we were tenacious in making sure we got that business."
He was equally tenacious in ensuring that Foodland dubbed "Australasia's sleeping giant" had a place at the table on home turf in Australia. The following year Dairy Farm International put its 287-strong discount chain Franklins on the market. When the stores were finally shared out under the watchful eye of the Australian Competition and Consumer Commission, South Africa's Pick 'n Pay and domestic giants Coles and Woolworths got the lion's share. But Foodland snapped up 36 stores, boosting its buying power and giving it a foothold in Queensland uncharted territory for the Perth-based group.
The fact Coates' former employer Aldi widely tipped to snap up Franklins steered clear, came as no surprise, he says: "Aldi prefers to grow organically. As a private company with deep pockets, it can afford to take a long-term view of markets if that is the price it must pay for purpose-built facilities."
Meanwhile, Foodland goes from strength to strength with a far broader proposition than Aldi, says Coates. Eight to 10 new Action [company owned] supermarkets a year will be built for the foreseeable future, while new franchise opportunities are being explored, including a new convenience format. The immediate priorities, however, are driving efficiency through smarter purchasing, factory gate pricing, and better communications with suppliers to reduce inventory, free up capital and drive availability.
Not to mention aggregating the buying functions across Foodland's businesses, and integrating the Franklins stores in Queensland.
Like the UK, there are a lot of single person households, and a lot of women who work and have less time to prepare meals. But this has not manifested itself in aisles and aisles of ready meals, says Coates. "Social structures are changing, but the fresh food here is so much better, and so much cheaper. The price of fresh food in the UK is staggering."
Pressure on the supply chain in a huge country
While EDLP has had some impact, high/low remains the dominant pricing/promotional model, which can put pressure on the supply chain, he admits. "Generally speaking, there are a lot more out-of-stocks than in the UK.
"Freight costs here are immense. There are some stores in the north-west that take two to three days to get to by road."
However, the logistical challenges of distributing goods across a country spanning thousands of miles and serving just 20 million people are not entirely to blame.
Most problems boil down to poor communication with suppliers. "We all need to upgrade IT to help us improve in this area, as well as space planning and category management," he says. And, as in the UK, Aussie retailers are trying to get suppliers to "open their books and break down the costs of doing business".
The largest part of Foodland's business in Australia is in supplying the independent sector which is not under the same pressure as it is in the UK, even though market leaders Coles and Woolworths probably have more than two-thirds of the market between them.
"Our franchisees own stores up to 30,000 sq ft, and I would say the quality far exceeds that in the UK."
Unusually, franchisees and other independents supplied by Foodland have access to the same Signature own label range as Foodland's corporate stores in a bid to drive volumes and gain leverage with suppliers.
The fact Tesco, Wal-Mart and Ahold did not see Franklins as an entry vehicle into Australia came as no great surprise to Coates. True, he says, there are the obvious attractions of the market, given the shared language, the cultural fit and the quality of the manufacturing base.
"But let's face it, there are 20 million people in Australia and 3.8 million in New Zealand. In Indonesia, there are 250 million. Where would you go?"
If someone wanted to buy the number one or two player in Australia, they would have to pay a 20-30% premium on the share price, he claims. "As a public company, I'm not sure the shareholders would be very enthusiastic if you had to make an acquisition at a huge price/earnings multiple in a market like this.The market here doesn't have the density and longer term potential some other markets have. I suspect it is some way down the shopping list."
If Australia is not regarded as a land of unbridled opportunity by Tesco or Wal-Mart, there is still plenty of scope for domestic players like Foodland to make progress, he insists. "The market is by no means saturated, and there are substantial opportunities for us to expand in Western Australia and Queensland."
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