Have Major Supermarkets Claimed Another Scalp?

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SYDNEY -- 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 administrator. 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 (ASX: WOW.AX), Wesfarmers (ASX: WES.AX) subsidiary Coles, Metcash Limited (ASX: MTS.AX), and other supermarket operators like Aldi offering similar products to Darrell Lea for lower prices, it's perhaps no surprise that the company has gone into receivership.


With a vertically integrated model, Darrell Lea captured more than its fair share of the margin. In some ways, the company mirrors Billabong International (ASX: BBG.AX), as Billabong expanded into retail from manufacturing. But both companies now have their issues. Despite its exclusive products, Darrell Lea has been unable to perform in the face of low-priced competitors and weak consumer sentiment that has shoppers unwilling to pay a premium for its products.

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

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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At the time this article was published 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, while it's still available. This article contains general investment advice only (under AFSL 400691). Authorized by Bruce Jackson.Motley Fool newsletter serviceshave recommended buying shares of Diageo. The Motley Fool has adisclosure policy. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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