Having the weathered the retail storm created by Aldi, supermarket veteran Fred Harrison is confident he can handle another German supermarket invasion.
Harrison has been chief executive of Australia’s largest independent supermarket chain, Ritchies Supa IGA, since 1994. In the role, he has witnessed first hand the seismic impact of Aldi on the Australian groceries market.
Ritchies has managed to stay profitable and eke out growth despite the German’s chain’s notoriously aggressive pricing. That gives Harrison confidence his outlets will be able to withstand what many observers believe will the next big challenge for the industry.
“Every day is a fight, every day is a battle, and we’re all chasing the one customer,” Harrison tells The Age and The Sydney Morning Herald.
The impending arrival of German hypermarket Kaufland has haunted Australia’s retail sector since 2017. Kaufland is expected to swiftly sink its teeth into the Victorian market with 14 stores set to open over the next five years.
We’re never going to outmuscle Coles, Woolies and Aldi on price, so for us, it’s about points of differenceSupa IGA chief executive Fred Harrison
With its stores typically 20,000 square metres and stocking everything from fresh meat to car parts, it’s easy to see why Kaufland has sparked fears similar to what was seen ahead of Aldi’s Australian arrival in 2001.
But this is not Harrison’s first rodeo. With 76 Ritchies stores across the country’s east coast, he’s prepared for the new challenge.
“Aldi changed the landscape. We all became more price-conscious, and we all became more competitive,” Harrison says. “I would think there’s a good chance of another round of price wars when Kaufland opens up, we’ll see that same competition again.
“So we won’t underestimate them.”
Part of Ritchies’ success as an independent has been thanks to its close relationship with listed grocery distributor Metcash, which is both the company’s largest wholesaler and a 26 per cent shareholder.
Its remaining shares are 45 per cent owned by the family of chief financial officer Mal Cameron and nearly 5 per cent by Harrison himself, with the remainder split between about 200 former and current staff members.
“We’ll keep going to market with a slightly different approach, and while it doesn’t appeal to every customer, it certainly appeals to some,” he says.
Ritchies’ approach in recent years has been one of “premiumisation”, focusing on providing its customers with higher-quality food, or products they would not be able to find in the country’s big supermarkets.
“We’re never going to out muscle Coles, Woolies and Aldi on price, so for us, it’s about points of difference,” he says. “Being famous for segments within our business.”
This sees a standard Supa IGA store stocked with artisan bread, bespoke spreads and a veritable provedore of meats, cheeses and other savoury treats.
Its also seen the company maintain strong top-line sales, coming in at just under $1.1 billion for the 2019 financial year, though at Harrison’s own admission, margins on those sales are tight.
“A good year for us is 2 per cent EBIT [earnings before interest and tax],” he says. “We’re always mindful of how and where we spend our money.”
In the 2019 financial year, Ritchies fell just shy of that benchmark, reporting EBIT of $19 million, or a 1.74 per cent margin. But Harrison points to the business’ consistent like-for-like sales as a sign of the company’s true strength.
‘The independent will never disappear’
“We’ve had five consecutive years of like-for-like sales of somewhere between 1.7 per cent and 3.5 per cent. So we have been very consistent if nothing else,” he says.
On this metric, Ritchies is running toe-to-toe with the likes of Woolworths and Coles – an impressive feat for a retailer in a far more cutthroat section of the market.
Once numerous, independent grocery retailers have been slowly disappearing from local shopping strips for the past few decades. Operators such as Jewel, Franklins and Bi-Lo have either shut down or sold up to the likes of Coles and Metcash.
Harrison points to South Australian and Queensland-based Drakes as the only other similarly sized independent grocery chain still in existence. But the refreshingly candid retailer remains adamant independent supermarkets still have a future.
“The industry has been speaking about the death of independents for 25 years,” Harrison says. “But the independent will never disappear.”
IGA stores, including the Ritchies stores, hold 7.1 per cent of Australia’s grocery market according to Roy Morgan, and other independents control a collective 9.1 per cent.
Together, the independent sector accounts for 16.2 per cent of grocers, significantly higher than Aldi’s 11.2 per cent stake, but its share has been steadily declining in recent years.
Harrison remains unfazed. “We might lose store numbers, we might lose share, but independents will always survive because we have an innate way of understanding the marketplace and adjusting our model to remain relevant.”
We’ve got 150 years proof that we can compete against whatever gets thrown at usRitchies chief executive Fred Harrison
“So, while I’m not going to sit here and say we’ll double our share in the next 5-10 years, I think you’ll always find a reasonably healthy independent sector because we’re very good at what we do.”
As a major shareholder and owner of two board seats, Harrison is reluctant to talk about the troubles facing Metcash following the loss of two key customer contracts but notes the success of the $2.6 billion distributor is “integral” for a lot of independent Aussie grocers.
“We need Metcash to perform and be successful because they’re our prime supplier. I see the relationship between Metcash, suppliers and retailers being the way of the future,” he says.
This view isn’t shared across the entire independent sector, with Drakes cutting its contract in order to self-supply its South Australian stores, something Harrison has ruled out for Ritchies.
“None of us like losing customers, but we have a supply contract with Metcash and we very much intend to continue honouring that contract,” he says.
Founded by a shipwreck survivor in 1870, Ritchies is about to embark on its 150th year in operation, which will see the company revamp its loyalty program with an app and new weekly discounts for shoppers.
It will also see the grocer donate its 50 millionth dollar to local clubs, schools and charities as part of its longstanding – and very popular – community benefit program.
At 150 years, Ritchies is comfortably one of the oldest Australian grocers still in operation today, enduring wars, recessions, and the aforementioned fierce competition.
Its this strength Harrison leans on when assessing the business’ future, firmly believing his passionate bunch of independent sellers will continue to fight, no matter the weather.
“I don’t think I’ve ever said in the last 10 years, ‘you know what, it’s pretty easy at the moment’. Retail is really tough, it’s really competitive, but that never changes,” he says.
“But this is the new norm, and if you can’t compete and become more efficient then you will disappear.”
“We’ve got 150 years proof that we can compete against whatever gets thrown at us, so I’m very optimistic about the future.”
Source: Thanks smh.com