Metcash supermarkets petition wholesaler for better prices as cost of doing business spikes

Chains like IGA, Foodland and Romeo’s are asking Metcash for lower prices and margin relief as they face growing costs around wages, rent and energy.

Independent supermarkets like IGA, Foodland and Romeo’s are facing cost hikes at their stores. Picture: NCA Newswire / Gaye Gerard

Supermarket wholesaler Metcash is being pressured by the thousands of independent supermarkets it serves – including IGA, Foodland and Romeo’s – to allow for higher margins as they face cost pressures at their stores due to steeper rents, energy and wages bills.

Independent chains have been caught in a nasty pincer movement between the demand to stay price-competitive with majors Woolworths and Coles, and mushrooming costs within their own operations, which have shaved away already thin profit margins.

An emerging pain point for many independent supermarkets is higher rents, with many stores signed up to rental agreements that include inflation-adjusted rises that are steadily crunching profit margins.

These independent supermarkets have been putting their case to Metcash since the beginning of the year through the National Retail Council (NRC), as well as state councils that represent independently owned supermarkets and have direct discussions with Metcash executives. Representatives of stores under banners such as IGA, Foodland and Romeo’s have held meetings with Metcash chief executive Doug Jones and the Metcash head of food, Grant Ramage, presenting their case for better margins between what they pay the wholesaler and grocery suppliers for goods and the prices they sell for at their stores.

Joseph Romeo of IGA is one of the stakeholders who presented their case for better margins. Picture: AAP Image/Kelly Barnes

The NRC has been central to this, meeting regularly with the Metcash CEO and food boss to convey to the pair the cost pressures independent supermarket chains are under.

The key sticking point is believed to be the pricing set for “price match” and “every day low prices” food and groceries that Metcash supermarkets sell, with Metcash able to set these promotional prices.

This has been key in maintaining the price competitiveness of Metcash-aligned independent supermarkets as they battle giants Woolworths and Coles, which are all fighting for shopper dollars when the cost of living crisis remains top of mind for most ­consumers.

Independent supermarkets are now strongly arguing for some margin relief as they keep shelf prices down but face their own higher business costs, and want Metcash as well as the nation’s biggest food and grocery suppliers to help reduce their own prices. NRC chairman and boss of the family-owned Romeo’s chain of independent supermarkets, Joseph Romeo, told The Australian that Metcash had been responsive to the concerns of the independent chains and was working with the banners to lower prices at the wholesale level – thereby giving some margin relief to supermarket owners.

“We want to continue to drive better cost of goods for our fellow retailers, which will benefit our customers, and by benefiting our customers it will give us more volume, which will make our independent network more sustainable,” Mr Romeo told The Australian.

The Romeo family owns 40 supermarkets across South Australia and NSW, one of the largest groups of stores that partners with Metcash, along with thousands of other independent supermarket retailers across Australia.

Staff at Ritchies IGA at North Ryde. Picture: John Feder

The Metcash food pillar, which sits alongside its liquor and hardware wholesale businesses, delivers 40 per cent of group earnings through the supply of food and groceries to independent supermarkets such as IGA, Foodland, Romeo’s and Ritchie’s.

Mr Romeo said independent supermarkets were facing a range of cost pressures at the moment that were constricting profit margins at a time when they needed to be price-competitive with Woolworths and Coles to hold on to customers.

“Energy continues to increase, looking at plus 20 per cent, and then rents are going up, where traditionally CPI has been at 1 or 2 per cent, now it is at 5 or 6 per cent,” he said.

“Then there are increases in wages.”

Mr Romeo said there were opportunities to work with the wholesaler and run the business more efficiently, and drive a lower cost of goods.

“And that’s where the supplier and wholesaler comes into place,” he said.

“We need to stay competitive in the market.”

Mr Romeo said shoppers had “fallen in love with IGA” again during the pandemic and Covid-19 lockdowns as they shopped locally.

“While people are working from home they shop local,” he said.

“We held on to those customers and we need to continue this, and as retailers we will always challenge our wholesaler and our suppliers but we stay competitive.

“We rely on our wholesaler to help us get there and that’s the role of a wholesaler.

We have very robust representation on the NRC … we hear all the challenges supermarkets have.”

Originally published as Metcash supermarkets petition wholesaler for better prices as cost of doing business spikes