Metcash closes the gap
Wholesaler hails move to ‘local’ shopping
METCASH chief executive Doug Jones says the wholesaler is taking advantage of the rediscovery of neighbourhood stores in the wake of the pandemic to close the competitive gap between its stores, IGA and Foodland, and majors Coles and Woolworths.
Mr Jones said on a broad shopping basket of key supermarket items independent supermarkets under its banner had recently shaved 150 basis points from the price differential with the supermarket heavyweights, and Metcash was now flagging a further 60 basis points would come off.
“And we are essentially saying that price gap is so small, that we think it’s almost unnoticeable. We are achieving that in a couple of different ways; one of them is that our suppliers are working with us and are benefiting from the returns that they’ve had on that investment.
“We have run a very good price-match campaign and program. And, of course, we have become more efficient ourselves and as we grow and as the core of our business spins faster we are able to operate at lower net costs.”
This was especially welcomed by shoppers, many of whom had discovered independent supermarkets through the pandemic as they shopped locally, and were sticking with Metcash stores.
“We think what they are seeing is a great shopping experience, it is truly local, the range is wider, catered to their communities … and they don’t have to pay more for that,” Mr Jones said on Monday as Metcash posted an 8.2 per cent rise in interim sales to $7.75bn as net profit fell 2.4 per cent to $125.7m.
Underlying profit rose 9.1 per cent to $159.9m, with this measure of profitability excluding items such as adjustment of a put option valuation for its Total Tools joint venture of $21.3m and digital acceleration project costs of $12.8m.
Turning to the economic outlook, Metcash warned of accelerating food and grocery inflation running through the sector, with its own measurement of wholesale food inflation hitting 6.2 per cent for the first half of fiscal 2023 and accelerating to 8.8 per cent in the month of November.
Metcash revealed that galloping food inflation – led by many supermarket categories such as packaging, paper, pet food and meat – had ratcheted up since June.
The wholesaler, whose supermarket banners include IGA, Foodland and Ritchies, said that wholesale supermarket prices were up 4.9 per cent for the first quarter, rising to 7.4 per cent in the second quarter and then posted 8.4 per cent growth in October and 8.8 per cent inflation for November.
But the Metcash wholesale inflation figure excludes tobacco and fresh food, which means recent falls in the prices of some fresh food, such as lettuce, are not showing up in wholesale pricing.
Mr Jones said the wholesaler had recorded another pleasing half, with strong sales growth in the face of higher inflation and while cycling the impact of extensive lockdowns in the first half of 2022.
Metcash increased its interim dividend by 9.5 per cent to 11.5c a share, payable on January 30.
An Ord Minnett note to clients said the result was characterised by the strong Total Tools and liquor results and the flow through of inflation across each of the pillars.