About Independent Supermarkets
Existing Sites
Independent supermarkets (leaseholds) are largely bought and sold in the market at a multiple averaging between 10 to 15 times of weekly sales, plus Stock at Valuation (SAV). A store achieving sales of $100,000 per week could be expected to sell between $1M - $1.5M plus stock at valuation. A secondary check of this price is in the traditional accounting EBITDA (Earnings before Interest, Tax, Depreciation. and Amortisation) multiplier which averages between 3 - 5 times EBITDA.
When budgeting to purchase on existing store, there are a number of additional costs that should also be allowed for, including -
- Rental Bond (generally 3 months rent) provided by way of a Bank Guarantee;
- Suppliers Bond (Metcash, will generally need a gaurentee of 3 weeks worth of stock ) provided by way of Bank Guarantee;
- Some States charge Stamp Duty on Transfer of Leases,
- Solicitors costs; and
- Accounting costs to set up the trading entities which is normally a registered company.
When purchasing a site, the final price paid (the multiple) is largely determined by market forces, which can see stores selling for higher and lower prices than the average. However to understand which end of the matrix a store may sell can be driven by:
- Condition of the store - is it neat and tidy, clean and well lit;
- Condition of the Plant and Equipment - how old is it and has the refrigeration been serviced. As a rule of thumb, stores should have a capital expenditure program that upgrades plant and equipment every five to ten years;
- Location - is it in a prime area or growth corridor;
- Level of competition in the area;and
- What potential does the site have - increase in sales through expansion, growth or product range.
Rents of supermarkets are a key component as they reflect a stores fixed cost, therefore should be carefully reviewed when assessing the purchase. Rents that are too high can put pressure on the stores expenses requiring the management to make shortcuts in other areas like staffing or merchandising that could have a negative impact on that store.
New to Industry Sites
FoodWorks is actively involved in store expansion through establishing New To Industry (NTI) sites. NTI sites can offer a lifestyle change as many are located outside the major capital cities in provincial, rural, sea change or tree change areas.
The days of guessing where a store would be best located are long gone, Better tools, market assessments and financial forecasting gives retailers a higher level of data to make a more formal decision.
Australia, like most of the developed economies, is approaching saturation of large format supermarkets - i.e. those supermarkets greater than 2000 square metres (sqm). This is the segment which most attracts the major supermarket chains and some large multi-store retailers.
FoodWorks believes that whilst there are still selective opportunities for FoodWorks to develop and grow large (2000+ sqm) format supermarkets, there is a more significant opportunity for stores developments in the mid-range, 500 to 1500 sqm formats - i.e. the niche between the large, supermarket chain formats and that of small supermarkets and convenience stores.
FoodWorks Market Assessments assists in determining viability of supermarket sites in this mid range and through benchmarking we can build sound financial models to assist with budgeting.
FoodWorks does have a brand criteria, which reflects the minimum requirements of stores. New sites under 250 sqm generally provide insufficient space to carry a core range and would be unlikely to be pursued as a branded opportunity.
On average, we budget between $1,000 - $1,250 per sq m for fit out costs on the sites gross lettable area. As an example, a site of 500 sqm may cost around $625,000 to fit out. Stock is on top of this and is approximately 2.5 - 3 times the expected turnover per week. If the store is expected to achieve sales of $100,000 per week, stock required will be approximately $250,000 to $300,000. Total outlay will be approximately $900,000.
When budgeting to establish a new site, there are a number of additional costs that should also be allowed for, including -
- Rental Bond (generally 3 months rent) provided by way of a Guarantee by Bank;
- Suppliers Bond (Metcash, general 3 weeks worth of stock ordering) provided by way of Guarantee by Bank;
- Some working capital as business builds;
- Solicitors costs; and
- Accounting costs to set up the trading entities which is normally a registered company.
Whilst existing stores already have a track record of sales, new to industry sites will build goodwill over the first 12 -18 months. The capital outlay to establish this store should be covered by the sites future resale value after a financial year end trading period.