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Have major supermarkets claimed Darrell Lea’s scalp?

Darrell Lea, the privately owned confectionary retailer has been placed into receivership, after 85 years in business.

Insolvency firm PPB Advisory has been appointed as voluntary administrators. PPB’s Mark Robinson said the firm would undertake an urgent review of Darrell Lea with a view to selling the business as a going concern.

With Woolworths Limited (ASX: WOW), Coles – owned by Wesfarmers Limited (ASX: WES), Metcash Limited (ASX: MTS) and other supermarket operators like Aldi all offering similar cheaper products to Darrell Lea, it’s perhaps no surprise that the company has gone into receivership.

Despite Darrell Lea’s exclusive products, the company has been unable to compete against the very low prices offered by the other chocolate retailers, as well as weak consumer sentiment with shoppers unwilling to pay a premium price for its products.

The Australian confectionary industry is dominated by Nestle and Kraft. With the major retailers having a greater than 90% market share, both Nestle and Kraft may have been willing to accept lower prices for their products given their customers market dominance.

With a vertically integrated model Darrell Lea captured more than its fair share of the margin, both manufacturer and retailer margin.

In some ways Darrell Lea mirrors Billabong International Limited (ASX: BBG), as Billabong expanded into retail, from manufacturing. Both companies now have their issues.

The Foolish bottom line

Whether PPB Advisory will be able to sell Darrell Lea as a going concern is debatable. The ferocious price war between the big supermarkets appears to have eliminated Darrell Lea and one wonders who’s next?

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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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