Metcash dumped by 7-Eleven losing $800 million in sales in the process
Written on the 22 November 2019 by David Simmons
Think your breakup was bad? Take solace in the news that Metcash (ASX: MTS) is set to lose hundreds of millions in earnings after ending things with convenience chain 7-Eleven.
Metcash announced this morning that 7-Eleven will not be renewing its current supply agreement after it concludes on 12 August 2020.
As a result, Metcash is losing out on approximately $800 in annual sales to the chain, which comprise lower-margin tobacco sales.
The distributor was unable to reach an agreement with 7-Eleven on its supply requirements for the east coast, including delivery routes and scheduling.
Metcash says the requirements imposed by 7-Eleven would lead to supply being "uneconomic" for its convenience business.
The company remains in discussions with 7-Eleven to continue supply in Western Australia, as well as a number of smaller categories on the east coast.
The distributor says it is assessing opportunities to help offset the impact of the lost 7-Eleven contract.
The loss of the 7-Eleven contract is the second big hit to Metcash this year. In September SA supermarket chain Drakes announced its independence from Metcash after constructing its own distribution centre in Adelaide's North.
Drakes' centre is three times the size of the MCG or 40 Olympic sized swimming pools and utilises $15 million worth of robotics and houses 23,000 separate lines of products.
The loss of Drakes from the Metcash Group is expected to cost the company around $270 million in sales and $16 million in earnings.
Shares in Metcash are down 9.54 per cent to $2.75 per share at 1.52pm AEDT.
Business News Australia
Author: David Simmons