Metcash asks IGA and Foodland stores to resist raising shelf prices so it can remain competitive with Woolworths and Coles

Metcash has asked retailers operating under its IGA and Foodland brands to resist raising shelf prices despite rising inflation putting pressure on store profits.

Owners of IGA and Foodland supermarkets have been warned by wholesaler Metcash that lifting shelf prices too high to cope with inflation and the rising cost of doing business could see their customers defect to more competitive rivals like Woolworths, Aldi and Coles. Picture: Brendan Radke

Metcash has asked retailers operating under its IGA and Foodland brands to resist raising shelf prices despite rising inflation putting pressure on store profits, warning it could mean a loss of customers to Woolworths and Coles.

Operators of IGA and Foodland supermarkets were told at their national conference on the Gold Coast last month that “putting prices up will make retailers less money” and that there are “lots of ways to improve margin and bank more gross profit dollars but none of them involve putting prices up”.

One slide bluntly warned them: “Don’t increase shelf prices – this will reduce gross profit dollars”. It and comes as Metcash-aligned chains are locked in fierce competition with larger rivals as shoppers search for value.

In a series of briefings to thousands of retailers supplied by Metcash at the IGA conference – and repeated to grocery and food suppliers at a forum on Wednesday – executives warned that shoppers who had discovered their local stores in Covid-19 lockdowns and remained loyal could abandon them for the majors if prices rose.

At the forum on Wednesday, suppliers were told that the key messages to its supermarket operators was that the brands had made progress in recent years in improving competitiveness, as evidenced by strong sales performance and market share gains.

At the full-year results last month, Metcash said customer growth seen at the beginning of the pandemic had continued, and in some areas accelerated. Metcash’s supermarket food sales over the past two years have risen 13.8 per cent, while for its flagship IGA network, like-for-like sales growth in the last two years has hit 14.6 per cent. This has been built on ­continued shopper support for local neighbourhood stores, the ­company believes.

However, these gains could be placed in peril, suppliers were told on Wednesday, if Metcash’s retail partners simply lifted prices when suppliers sought price hikes to cope with the soaring cost of doing business.

The suppliers forum was led by Scott Marshall, the boss of Metcash food, Danielle Jenkinson, head of retail channels and marketing and Grant Ramage, executive general manager for merchandise at Metcash food.

A spokesman for Metcash said many consumers had discovered their local IGA or Foodland during the pandemic, and enjoyed the shopping experience and the range of products. But value also played a role, and if Metcash retailers and suppliers lifted shelf prices too high it could slow that sales momentum and push consumers back to Woolworths and Coles, he said.

“Shoppers have been enjoying the differentiated offer of the IGA network which provides great value through the convenience of local shopping, wide ranges tailored to the local community and with the brands they want, together with friendly local service,” the Metcash spokesman said.

“Importantly though, they don’t have to pay more.

“The network has become even more price-competitive, supported by our Price Match and Low Prices Every Day programs.”

He said this was the key message of the slides from the presentations to IGA and Foodland supermarket owners last month and to its food and grocery suppliers on Wednesday.

“The key point in both slides is that our retailers will grow their gross profit through volume growth by continuing to provide the value from our differentiated offer, which includes competitive prices. That is, if prices are not competitive they could lose sales and gross profit,” he added.

“As a wholesaler, we accept price increases. Our position has … been consistent: where suppliers put forward legitimate reasons for increases we accept them.

“However, our focus continues to be on keeping our retailers at least as competitive in the market, even after the change takes effect.”

The pressure on Metcash retailers to keep shelf price rises at a minimum, or frozen for as long as possible, comes as the $100bn supermarket sector is locked in a protracted and heated battle for shoppers amid rising inflation, which is making consumers more price-sensitive than ever before.

Woolworths and Coles, as well as other retailers, have been increasing shelf prices over the past year as they face relentless requests from suppliers to lift the prices they are paid for their products in the face of the ballooning costs of doing business, led by rocketing charges for energy, transport, raw commodities and materials, labour and fuel.

But if one supermarket chain is viewed by shoppers as moving too fast and too high on shelf prices it could sent shoppers to the exit, giving a leg up to their rivals, Metcash has warned.

Originally published as Metcash asks IGA and Foodland stores to resist raising shelf prices so it can remain competitive with Woolworths and Coles