November 22, 2019 / 2:02 AM / 20 days ago

Australia's Metcash flags end to 7-Eleven supply deal, shares plummet

(Reuters) - Metcash Ltd (MTS.AX) on Friday said convenience store chain 7-Eleven will not renew its supply agreement with the Australian grocery distributor after their contract ends in August 2020, prompting its shares to mark their worst session in 17 months.

The contract with 7-Eleven will not be renewed as both companies were unable to meet a deal on supply requirements on the Australian east coast, especially regarding delivery routes and scheduling, Metcash said.

“Metcash determined these requirements would lead to supply being uneconomic for its convenience business,” the grocery distributor said in a statement, adding that it remains in discussions with the Japanese-American brand to continue supply in Western Australia.

Shares of the distributor dropped as much as 12.2%, their worst session since May 2018 after the announcement, in contrast to a 0.6% rise in the ASX 200 benchmark index .

Metcash said total convenience annual sales to 7-Eleven were about A$800 million (420.71 million pounds), and that it would be “assessing opportunities to help offset the future earnings impact” from the development.

Primarily held by Tokyo-listed Seven & I Holdings Co (3382.T), 7-Eleven operates in Australia through a franchise agreement with the Withers and Barlow family.

7-Eleven Australia had come under scrutiny in 2015 after an Australian Broadcasting Corp report accused the firm of letting franchisees threaten workers with deportation if they complained of being paid as little as half the minimum wage. reut.rs/35iZbs6

Reporting by Ambar Warrick in Bengaluru, Editing by Sherry Jacob-Phillips

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