Super Retail Group: Watch out, here comes Metcash!

Get ready for an auto parts demolition derby

Metcash Limited (ASX: MTS) has today announced that it has entered into an agreement to acquire 75.1% of the Automotive Brands Group (ABG) for $53.8m. ABG is a distributor and franchise operator in the automotive parts aftermarket sector, distributing product to a network of 241 stores. ABG owns and manages the Autobarn franchise (102 mainly retail stores), Autopro dealership groups (118 mainly trade based stores) and its Car Parts division services a further 21 independent operators.

At first glance, you may be wondering why a supermarket retailer would move into the vehicle aftermarket sector. Metcash is primarily a product distributor, so this move would mainly add more products to its distribution channels. Secondly, the vehicle aftermarket sector is not that far removed from the hardware sector, and with Metcash planning to take up the rest of Mitre 10 that it doesn’t already own, it starts to make more sense.

Super Cheap Auto

This may have implications for Super Retail Group Ltd’s (ASX: SUL) Super Cheap Auto vehicle accessories stores, with Metcash likely to grow the Autobarn brand and number of stores. With Metcash backing Autobarn, Super Retail may have a competitor it will need to take very seriously. By rough comparison, Super Cheap Auto has around 250 stores across Australia and New Zealand, compared to ABG’s 102 Autobarn stores.

According to ABG CEO, Paul Dumbrell, the company had been looking to align itself with a business that could improve its brand strength, provide supply and ranging efficiencies and support ABG’s growth strategies. He said,

“We have a clean plan to grow the business. There are thousands of independent operators in the automotive parts and aftermarket sector and they are all opportunities for us.”

(As an interesting aside, fans of V8 Supercar racing will know of Mr Dumbrell. He retired from the sport last year as a racing driver. In 2007 he drove a car for Super Cheap Auto Racing – a car sponsored by ABG’s biggest competitor).

AMA or ARB?

AMA Group Limited (ASX: AMA) could be in Metcash’s headlights shortly. With a market cap of around $40m, the company would be a very small bite for Metcash. AMA operates in the wholesale vehicle aftercare and accessories market, including distribution of automotive accessories. Although, Metcash may not be interested in the motor vehicle and smash repairs business — that might be a bit too far from its core products and services. You can read more about AMA here.

The move could also spur Woolworths Limited (ASX: WOW) or Wesfarmers Limited (ASX: WES) to have a closer look at the motor vehicle accessories sector. ARB Corporation Limited (ASX: ARP), could be in their (or Metcash’s) sights, should they choose to enter that market.  The bull bar and 4X4 accessories retailer is a fair bit larger than AMA though, with a market cap approaching $650m, but still well within the reaches of Woolies, Wesfarmers and Metcash.

We certainly live in interesting times.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. The Motley Fool‘s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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