iRexchange eyes Metcash sales as retailers, suppliers sign up

iRexchange, the digital start-up threatening Metcash’s dominance of the $18 billion wholesale grocery market, is confident of achieving at least $4 billion in sales as retailers and suppliers join the online portal.

Since commencing trade in January 2017, iRexchange has signed up almost 500 independent food and liquor retailers and 150 suppliers, including major brands such as Kraft and Heinz, Twinings, Reckitt Benckiser, Johnsons, Cussons, Bellamy’s and San Remo.

After launching in Victoria, NSW and parts of Queensland, iRexchange is now expanding into other states to build a national footprint and eyeing new channels including pharmacy, petrol and convenience and food service.

Chairman Andrew Reeves says the company’s original forecasts for revenues of $4 billion in the first year and $8 billion in two years – which were included in fundraising documents and revealed in The Australian Financial Review two years ago – were optimistic but still achievable over time.

“The prize is still significant and consistent with those earlier numbers – the timing will be more iterative,” Mr Reeves, a 30-year veteran of the Australian fast-moving consumer goods market, told the Financial Review.

“I don’t think those numbers are out of court,” he said. “There’s huge potential for this new technology platform to have a really significant impact, particularly on the independent retail trade.

“There hasn’t been a lot of innovation in that supply chain for a long time whereas in the broader retail and grocery space there has been a lot of innovation.

“[There is] a chance for a new technology platform to create much lower cost and much greater competitiveness and hopefully make a contribution to the continued viability of the independent sector, which is critical for consumer choice,” he said.

Middlemen bypassed

iRexchange is disrupting the wholesale market by enabling independent retailers to order stock directly from suppliers through the company’s cloud-based B2B platform and cut out middlemen like Metcash.

The company has established strategic partnerships with DHL and Emergent Cold, which acquired Swire Cold Storage this year. Retailers’ orders are sent to DHL and Emergent distribution centres, or picked up from suppliers’ warehouses, consolidated into single pallets and delivered to retailers, cutting down on multiple deliveries.

iRexchange is initially targeting the 35-40 per cent of goods independent IGA and Foodworks retailers source directly from suppliers – a market potentially more than $6 billion.

However, if the model is successful, iRexchange threatens to take wholesale sales from Metcash, which has responded to the interloper by setting up a digital retailer-supplier portal, IndieDirect.

iRexchange’s latest catalogue has hundreds of products ranging from staples such as Quilton toilet paper and Heinz baked beans to niche brands such as Health Lab protein balls and Red Tractor bircher muesli.

iRexchange charges a 2 per cent service fee and $1-per-case distribution fee, a fraction of the fees charged by other wholesalers. Freight is billed separately.

“We’re not trying to be the buyer here, we’re facilitating the transaction between the retailer and supplier,” said Mr Reeves.

Capital move

After raising $25 million last year from investors including Moelis, Shaw & Partners and Peloton Capital, iRexchange is seeking to raise more capital and considering inviting a strategic partner to come in as a cornerstone shareholder.

“If there was a like-minded investor who wanted to make a cornerstone investment we’d be open to that,” said Mr Reeves.

iRexchange declined to say how much new capital it requires, but industry sources say the company is “burning cash” and possibly seeking another $25 million, in line with its original $50 million target.

ASIC accounts show iRexchange lost $18.2 million in fiscal 2017, reflecting heavy start-up costs, including the acquisition of wholesale distribution facilities and stock from independent retailer Supabarn.

Mr Reeves says an initial public offering is an option in the future but he wants to make sure iRexchange has strong commercial foundations before listing.

“Tech companies have to be quite careful in how they take themselves to market and make sure they have substantial commercial traction and substantial contracts in place,” he said.

The Melbourne-based company has already put in place a blue-chip board led by Mr Reeves, a former managing director of Coca-Cola Amatil’s Australian bottling business, Lion Dairy and Drinks and George Weston. Other non-executive directors include former HJ Heinz managing director Suzanne Douglas and former CUB and Seek executive John Armstrong.

“The industry is quite conservative, there’s a lot of existing contracts in place, there are a lot of strong relationships that have built up over time, you don’t turn those things over quickly,” said Mr Reeves.

“And people need to have confidence and trust that we’re going to be here for the long haul.”

“But a lot of retailers and suppliers are now coming to us directly and wanting to understand the model – there’s a lot of unsolicited contact, which is very encouraging.”

Extracted from Australian Financial Review

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