Metcash Likely To Lose Liquor Contracts

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By Greg Peel

The three most important liquids in the world are water, petrol and anything alcoholic. Given half a chance, Woolworths (WOW) and Coles soon-to-not-be Myer (CML) would jump at tying up Australia’s water market, although that’s unlikely to happen soon. Petrol is, however, now almost entirely the preserve of the supermarkets, and liquor is rapidly becoming same. Sometimes one wonders what the ACCC is actually for.

ABN Amro notes a significant proportion of Woolworths’ Hotel operations, including MGW, ALH and Taverner, are being supplied presently by Metcash’s (MTS) wholesale liquor arm, ALM. The Hedley Hotel Group, just snapped up by Coles, has a similar contract.

As the supermarkets expand their businesses, and Woolworths’ upcoming Brisbane distribution centre is an example, ABN believes ALM will lose its contracts. This will probably occur over a two year timeframe.

ABN does not see the specific contracts as greatly material to the Metcash bottom line, but it does highlight the vulnerability of Metcash’s wholesale model. ABN has lowered its target fro Metcash from $4.40 to $4.30. Not a significant fall, but the flow on from lost contracts is likely to be negative for the share price sentiment, suggests ABN.

Brokers are generally split over Metcash in the FN Arena database, with 3 Buys, 3 Holds and 2 Sells. ABN is a Hold.

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