Supermarket giant Coles will be "abandoned" by its parent company, a shocking move that faces an uncertain future because it does not have the backing of a large parent company.
Sinon (Wesfarmers), one of Australia's largest companies, announced on Friday that it and Coles had "finished" and obtained the necessary approval to split it into an independent company.
Sinon made it clear that the supermarket chain's potential for performance was not enough to allow them to hold on to it.
Rob Scott (Rob Scott), Sinon's general manager, said on Friday: "We will measure the chances of success over the next 10 years in terms of the returns we generate, not the size of the portfolio. Although Coles still has a lot of growth opportunities. But now we expect its profit growth to be more moderate. "
Coles's business-including 800 supermarkets, 900 wine stores and 700 convenience stores-has recently begun to run into trouble. In 2017, Coles's revenues fell and profits fell. Sinon's shares surged 6% after news of the split of Coles.
Reduction strategy failure
One reason for Coles's problem is that Australians have become "insatiable" about low prices. Excluding fresh and tobacco, Coles commodity prices fell 2.2% in 2017. While much of the pain of cutting prices has been passed on to suppliers, it has become harder to make a profit during the price-cutting period.
Coles can't raise prices because if it does, shoppers will go elsewhere. Meanwhile, Aldi continues to open new stores across Australia, with Woolworths sales expected to grow five times as fast as Coles.
Kaufland, a discount supermarket, is coming, and Amazon will one day launch an Amazon Fresh. in Australia.
In addition, (Costco) is expanding and three new stores are in the planning or under construction phase, building on nine existing stores. It is also building a warehouse that serves 30 stores. A good market spokesman said it was actually a long-term investment for development in Australia.
A growing number of retailers are preparing to "loot" positions occupied by Coles, which would make anyone nervous and understand why Sinon wants to get away from Coles.
But Sinon did not give up everything. It will retain up to 20% of Coles and hold a large stake in FlyBuys. If Coles operates independently without a controlling stake in FlyBuys, its life will be even harder after the split.
Why are there no buyers?
Since the global financial crisis, this era has become unique because of its low interest rates and loose currencies. Surplus funds wandered around the global economy, asset prices rose and bulk trading fell.
In this case, oddly enough, Sinon did not find the right buyer for Coles, nor did it sell it publicly. Instead of selling it to another company, Sinon split it up, let it go public and award its shares to existing Sinon stock holders.
Doesn't Sinon want cash? It's a big deal, but does anyone want to buy a big Australian supermarket? No?
"We will be open to the offer of any one of our companies," said Scott, general manager of Sinon.
It is clear that the ideal offer has not yet appeared.
Chinese buyers are particularly keen to invest in Australia, and private equity firms are, as always, eager to trade.
But none of them came forward and said they wanted to buy Coles.. For anyone considering the future of Coles, this silence is a bit disturbing.
Hope still exists.
The prospects for Coles are not entirely bleak. Although the situation may not look good, research has shown that splitting is actually helpful. This could be valuable, according to more than 20 studies on the split, which could raise the price of shares by 3.3 percent.
Perhaps the best example of this is the sale of the struggling wine business by Fosters, which led to Treasury wine Estates.. Since 2011, the company's share price has risen from about 3 yuan to more than 17 yuan.
Coles has ushered in a new CEO, and will operate independently. Just as some people thrive after a painful breakup, one day Coles recalls that now it might be time for us to begin to find our magic back.