With the new supply chain arrangements, FoodWorks aims to increase the presence of the house brand products on the shelves, from the current 5-6 per cent of total product lines to 10-15 per cent over the next two to three years.
Speaking at a recent conference, FoodWorks’ CEO Peter Noble said the move was to lift its competitiveness over major local and international players in the supermarket sector.
“As the industry become ever more competitive, with new formats like Aldi and Costco developing networks in Australia, our focus has narrowed in on developing and enhancing our private label offer and on new business and property in order to grow our business,” he told the conference.
FoodWorks, which operates over 700 supermarkets nationwide, is one of the biggest customers of grocery wholesaler Metcash.
The new partnership will see Metcash’s IGA Distribution no longer distributing FoodWorks’ ‘Best Buy’ products, giving FoodWorks greater control over their house brand products.
Dismissing concerns over the new agreement, Metcash chief executive Andrew Reitzer said it would not affect the company’s sales of profits.
“It is a ‘win-win’ situation for both Metcash and FoodWorks,” Mr Reitzer said.
Currently the IGA Distribution division handles 79 Foodworks ‘Best Buy’ exclusive private label products, which bring annual sales of $5 million to the division.
“Of the 79 ‘Best Buy’ products, 62 are uneconomical for us to handle as their turnover is 20 or less cartons per warehouse per week.
“By FoodWorks moving the ‘Best Buy’ products to CEVA, IGA Distribution will be able to make more efficient use of valuable warehouse space,” Mr Reitzer said.
He said Metcash would continue to supply its ‘Black & Gold’ generic products to FoodWorks retailers under a long-term supply contract, which expires in 2012.
The new agreement will start this month, with CEVA expected to service the entire FoodWorks network by next year.