THE saga of over-ambitious convenience store retailer 7-Eleven, which was
snatched from the liquidators' clutches by Metro Cash & Carry (Metcash),
should take some interesting new twists in the weeks ahead.
It seems the rescue deal by Metcash will not fall foul of the competition
authorities, opening the way for a powerful new player in the convenience
store market to take on market leaders Pick 'n Pay and Tiger Brand's slick
Spar operation.
It is unlikely that the competition authorities will rule against the deal.
There is ample competition from mainstay retailers in the convenience store
sector, and 7-Eleven would go belly-up without Metcash clambering aboard as
corporate rescuer.
Metcash has effectively been managing 7-Eleven while competition authorities
decide on a ruling.
Metcash operates about 170 Friendly Grocer convenience store franchises
around the country, and the acquisition of 7-Eleven will add another 200
mainly Western Cape-based franchise stores to its arsenal.
Some observers have questioned the viability of the convenience store market
- especially contenders who are effectively corporatising the corner café in
its bid to survive against additional competitive pressures from 24 hour
'garage forecourt' operations.
Shoprite battled with its 8 till Late stores, while Metcash itself came
somewhat a cropper with its Foodies chain some years ago.
One presumes Metcash has learnt some valuable lessons about building a chain
of 'corner convenience stores' during the Foodies affair. Otherwise why
would Metcash be going where angels fear to trade by acquiring - for an
undisclosed sum - most of the 7-Eleven franchise chain from the Hadjidakis
family?
Prefacing his comments by the fact that a ruling from the competitions
authority is still outstanding, Metcash spokesman George Cocolas told Cape
Business News that the 7-Eleven brand was still exceptionally strong in the
Western Cape.
Reading between the lines it seems safe to assume Metcash's detailed due
diligence of the 7-Eleven operations has shown potential to resuscitate the
brand under new ownership.
Cocolas stresses there will be no re-branding of 7-Eleven stores into
Friendly Grocer franchises. "We want brands that differentiate the
convenience store operations. We believe it could be to Metcash's advantage
to keep parallel brands, which will effectively allow us to open 7-Elevens
and Friendly Grocers within close proximity to each other."
Although some argue that 7-Eleven founder George Hadjidakis completely
cocked-up the convenience store operation on a corporate front, there will
be few who can doubt that the brand is well entrenched in the Western Cape.
There is still some speculation around why exactly 7-Eleven hit the wall.
Back in 2000 the first audible grumblings were heard from franchise holders
regarding the central support functions, which in some cases seemed to strip
down the profit margin for store owners to negligible levels.
Of course, 7-Eleven vigorously countered any suggestion of a fracas with
franchisees by spending liberally on full page advertorials in the Weekend
Argus.
These advertorials were interspersed with franchisee features where store
owners sang the praises of 'Mr George'.
Maybe this marketing effort supports an argument that the 7-Eleven head
office was concentrating too much on form rather than substance.
Information leaking out of the liquidation process suggests the 7-Eleven
chain had rather poor credit control systems and that the group's rapid
expansion was not tested against prudent financial principals - including
the availability of working capital. It was Nedbank that called in
7-Eleven's overdraft of R16m, and prompted provisional liquidation
proceedings.
There have also been allegations that rebates were not passed fully onto
franchisees, something that had been simmering for a number of years as
store owners battled to make ends meet.
One of the other interesting asides is the allegation that Hadjidakis was a
landlord to more than a few 7-Eleven franchises. The running of the fast
growing franchise operations while having to concentrate on the business of
being a landlord might well have proved distracting.
While the real reasons for 7-Eleven's trouble's will probably not be
revealed it is significant that a blue chip retailer some years ago walked
briskly away from a joint venture to grow a franchise presence outside the
Western Cape.
Ask a Pick 'n Pay executive privately what the group thought of 7-Eleven,
and you're likely to get a most impolite response.
So why does Metcash think it can make a mint from this tarnished brand -
admittedly now sans the 'Hadjidakis factor'.
Cocolas says Metcash will enjoy phenomenal "economies of scale" by operating
more than 350 convenience stores under the Friendly Grocer and 7-Eleven
brands.
It's worth remembering that rebates from suppliers are based on volumes,
meaning the more product ordered from suppliers for Metcash's convenience
stores shelves the bigger the reward for franchisees as well as a big
opportunity to bolster franchise fee margins.
Another advantage for Metcash is that 7-Eleven's franchise administration
will fall under its powerful centralised control, which should certainly
mean a big improvement in credit control and better supply chains to
franchisees.
Cocolas also indicates that Metcash will re-negotiate any 7-Eleven property
leases - presumably including any ones still held by Hadjidakis. "If we
think lease costs are too high we will simply walk away from those
particular stores."
Metcash is also taking no chances in the deal. Cocolas, while declining to
reveal the purchase price offered to the Hadjidakis family, says that the
group "will assume not one cent of debt at store level at 7-Eleven."
Reports suggest creditors claims of R90m have already been settled as well
as almost R7m owed in provisional liquidators' fees.
Whether Hadjidakis or Metcash (who apparently advanced funds to Hadjidakis
as a loan) actually settled these claims is a matter of conjecture, although
not critical to 7-Eleven's future under new owners.
What might be more pertinent to 7-Eleven's future will be Metcash's ability
to soothe a frayed franchise network.
Re-building a degraded brand is always a tough call, and it might be naïve
to rule out some casualties in Metcash's tricky task.
But with Metcash at the helm of a sprawling convenience store operation you
can bet Pick 'n Pay, Spar and Shoprite will be paying close attention to
developments.
Publisher: Cape Business News
Source: Cape Business News
THE saga of over-ambitious convenience store retailer 7-Eleven, which was snatched from the liquidators' clutches by Metro Cash & Carry (Metcash), should take some interesting new twists in the weeks ahead.
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