HONG KONG RETAILER TO SELL CHAIN IN AUSTRALIA

ARTHUR HAGOPIAN

SYDNEY, Australia -- The long-expected carve-up of Australia's third-ranking supermarket chain, Franklins, was set in motion last week by its parent company, Hong Kong-based Dairy Farm International.

Dairy Farm said the move follows completion of an extensive strategic review of Franklins, and it has decided to sell the largest segment of its 285 stores to independents, primarily through a strategic alliance with Metcash Trading (formerly Davids).

More than 60% of Franklins' sales, a total of over $1 billion per year, will be transferred to independents.

Dairy Farm said the key to its managed sell-down is a Joint Independent Divestment Alliance between Franklins and Metcash, which will handle the progressive sale of approximately 120 Franklins stores to independent retailers.

Andrew Reitzner, Metcash chief executive, who described the deal as a "once in a lifetime opportunity" for independent retailers, said it will allow independents to "redress the balance of market power in the retail food industry."

Another 80 stores will be sold to Australia's leading supermarket chain, Woolworths.

The agreements with Metcash and Woolworths will need the approval of the Australian Consumer and Competition Commission. Franklins had initially planned to sell 130 stores to Woolworths, but scaled back its offer following discussions with the ACCC.

Between 10 and 30 of Franklins' stores are expected to close and the rest could be acquired by Coles Myer, which had been eyeing Franklins stores in South Australia and Victoria. Foodland, a West Australian chain, has also expressed interest in Franklins Queensland and some New South Wales stores.

The plan will take at least six to nine months to finalize, together with the normal period for sale completion and transfer of stores, according to Ian Cornell, Franklins managing director.

He noted that while many Franklins stores were profitable, the Franklins business itself "is not sustainable without substantial rationalization and significant further investment which Dairy Farm cannot justify."