THE announcement of the death of the Franklins grocery chain, after a slow, painful illness, won't surprise many supplying the grocery market.
The small grocery chain these days has its stores mostly located in NSW.
The original Franklins chain - which had an expensive failure at running a "fresh food" challenge against the two major grocers but failed in delivery - was carved up between Woolworths and Metcash/IGA in 2001.
Some might remember the Franklins Big Fresh fiasco that aimed at using a radically different approach to fresh-food marketing as a drawcard into stores, but the model lost customers quickly.
South African retail group Pick 'n' Pay took a punt on expanding in the Australian market and bought 50 of the stores in NSW and the rights to the soiled Franklins brand. The group subsequently added 35 stores to that portfolio.
But it was never a big winner.
Franklins holds about 2 per cent of the grocery market and earned its owners a paltry margin of less than 1 per cent on sales. The majors operate at between 4-7 per cent these days.
Metcash formerly supplied the Franklins chain but the parties had a dispute in 2005 and Pick 'n' Pay set up its own chain that never achieved critical mass.
Pick 'n' Pay has agreed to sell to Metcash for $215 million. The existing $860 million of retail sales made by Franklins will convert to about an additional $500m in wholesale sales by Metcash through these stores in future.
You can do the maths, but there's a little glimpse into the scale of the mark-up that exists in the land of independent retail, where stores are more expensive to operate and achieve much smaller sales per square metre of floor space than large supermarkets.
Metcash has also made a major play in hardware with the purchase of Mitre 10 to apply a similar model to food wholesaling, where it takes on the big box approaches of Wesfarmers and Woolworths groups.
Metcash and its IGA franchise partners have been pretty effective at mixing it with the grocery majors in the past few years. Couple that with the expanding and menacing presence of the discounter, Aldi, and the market operates with some fierce competition based on both price and convenience.
This small expansion will take out an ineffectual competitor and narrow the field to further intensify the battle.
It will be interesting to see how the ACCC plays this proposed transaction. The chairman of the competition regulator and the chief executive of Metcash aren't good mates after their stoush in the 2008 Grocery Inquiry.
