“It’s unsustainable”: Grocery startups offer to help Aussie Farmers Direct franchisees, but supermarket price war remains the big challenge

Independent grocery startups say their hearts go out to franchisees affected by the collapse of Aussie Farmers Direct and they’re trying to find ways to help stranded franchise operators in the face of an incredibly tough retail environment.

Aussie Farmers Direct ceased trading immediately on Monday after falling into the hands of administrators at KordaMentha, leaving 100 franchise operators to deal with the fallout after spending hundreds of thousands to buy franchises.

Customers and franchisees have spoken of their anguish over the situation on social media this week, and fellow independent grocery players have offered to help where they can.

One of these businesses is two-year-old Victorian produce delivery service FarmGate Online, with director Alasdair Moodie telling SmartCompany its clear the entire independent grocery sector is facing challenges, and “an awful lot of people are really suffering as a result” of the Aussie Farmers Direct collapse.

“As long as the conversation stays around price, then farmers and local producers are just going to continue to get squeezed,” Moodie says. 

“It’s unsustainable and at some point, it’s going to give.”

FarmGate Online has focused on building relationships with local producers in Victoria, says Moddie, and also operates a social enterprise function where schools and childcare centres can receive benefits from signing on to receive the company’s deliveries.

However, Moodie says the business has stayed well clear of entering into the general grocery items market, as Aussie Farmers Direct had done, instead focusing on a leaner offering targeting customers who want quality produce.

He says FarmGate Online has been in conversations with Aussie Farmers franchisees, but working out the best way to help them will be a bigger conversation.

“We’ve spoken to a couple at this stage, and what we’re trying to work out is how to fit what they were doing into what we do. It seems to be that they have been largely on the distribution side,” he says, rather than building direct relationships with suppliers and customers. 

Moodie says he “understands the financial pressure on any company” trying to fight the Coles and Woolworths titans, but given the tough environment, FarmGate also has to protect its operations while working out the best way to help others.

“We’re going to keep on talking to people,” he says.

YourGrocer co-founder Morgan Ranieri. Source: Supplied

Scaling is risky, but interest in quality remains

Co-founder of grocery delivery startup YourGrocer, Morgan Ranieri, suspects that Aussie Farmers Direct’s decision to go up against the big players in selling more general grocery items categories caused big challenges for the business.

“When they scaled, they had to purchase groceries the same way that Coles and Woolies do. Then the question is, ‘why would you shop there, over Coles and Woolies?'” he tells SmartCompany. 

Founded in 2013, YourGrocer has previously raised over $1 million in capital to build its operations. As of July last year, it was capturing 15% of the online grocery market in inner-north Melbourne postcodes, with $4.5 million in groceries on the platform

Ranieri believes the big two supermarkets have been wise to the idea that they can position home brand products as independent or organic, but ultimately there is still a desire from customers for a locally-sourced, high-quality fresh produce option.

“Coles and Woolies are smart, they know what consumers want and know how to position their products in a way that aligns with that — but a lot of it is just marketing and packaging hype,” Ranieri says. 

The only way for challengers to the big two to survive is to “find a way to get ahead by an order of magnitudes”, by doing something that big companies don’t, he says. He believes YourGrocer’s exclusive focus on fresh produce delivery ticks that box.

However, when it comes to helping those affected by the Aussie Farmers Direct situation, Ranieri also says it will be a matter of working out what assistance, if any, YourGrocer can give.

“We’re thinking about it now, whether we can partner with drivers,” he says.

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