Drakes reports surge in revenue on the back of COVID-19

Drakes has overcome a tough start to its move towards full independence, reporting a surge in revenue on the back of COVID-19 panic buying.

The country’s biggest independent supermarket retailer has overcome a difficult start to life on its own and reported a surge in sales on the back of COVID-19 panic buying.

A year after parting ways with wholesaler Metcash in South Australia, Drakes has reported a 14 per cent increase in revenue for the year to June, up from $1.09 billion to $1.25 billion.

The company, which operates more than 60 stores across South Australia and Queensland, opened its own $125m distribution centre in Adelaide in September last year in a bid to cut costs and deliver savings to shoppers.

Drakes chief executive Roger Drake said COVID-19 had helped the company overcome a rough start to its self-supply model, and it was now reaping the rewards of full independence.

“It was probably the worst thing I’d ever done for the first 12 weeks and since then it’s become the best thing - we’re seeing the real benefit of that vertical integration,” Mr Drake said.

Drakes chief executive Roger Drake. Kelly Barnes/The Australian

“We just weren’t competitive at the start but we’ve now created our own brand called Value and that’s doing better than I’d ever dreamed of.

“The distribution centre is starting to really run properly. We’re our own fresh fruit & veg wholesaler, we do our own meat processing - the vertical integration has meant we’re able to be more competitive and we see prices dropping further for consumers in the future.”

Metcash retains a 26 per cent stake in the Drakes network in Queensland, where the grocer accounts for close to 4 per cent of Metcash’s sales.

It’s expected Drakes will cut its remaining ties with Metcash in Queensland, despite signing a five-year distribution agreement with the wholesaler in June last year.

Mr Drake said a decision had not yet been made, and would depend on the success of its new SA distribution model.

“If they (Metcash) can get us buying at the right prices then we’re interested but we’ve got to be competitive,” he said.

“We’ve got a wholesaler that has a lot of overheads and it’s important that they can supply to us at competitive prices - if not then we’ll look at other options.

“It’s all about delivering to consumers at the lowest possible price.”

Metcash on Monday posted a jump in sales and profit for the six months to October, and revealed it would accelerate a push into online grocery delivery in a bid to compete with dominant players Woolworths and Coles.

Mr Drake said his business also saw the need to expand its online offering to keep up with changing consumer trends.

“We were probably a bit slow to kick things off and it’s one of the more unprofitable parts of the business, as it is for Woolworths and Coles, but at the height of COVID-19 it almost got to the stage where we just couldn’t keep up with the demand,” he said.

“Our cheapest labour is the customer but you’ve got to have online as it will become part and parcel of the business in the future.

“We might get to a stage where consumers will buy things like toilet paper online but then come into the store for their fresh food and fruit & veg.”

Mr Drake said while sales were still tracking 10-to-15 per cent higher than pre-COVID levels, there were concerns about the impending end to government stimulus.

“I do think that overall the industry is going to benefit in the longer term - you’ve got more people working from home, more at home cooking and I don’t think that’s going to stop,” he said.

“JobKeeper and JobSeeker are very good but when all that dries up it will be the real test - I think we’ll have to come back to reality.”

Mr Drake confirmed the company would continue to vigorously defend a potential $20m class action alleging the company underpaid staff.

It became the latest major SA retailer to face underpayment claims in October, with similar ongoing lawsuits filed against SA’s Romeo Retail Group and OTR, operated by the Shahin family.