IGA ‘picking up Woolies shoppers’

INDEPENDENT supermarkets are absorbing Woolworths customers, the boss of Australia’s largest IGA network claims.

Daisy Sonter-Kelso shopping at the Brunswick Street IGA in New Farm.

INDEPENDENT supermarkets are absorbing the customers that Woolworths is losing, the boss of Australia’s largest IGA network claims.

Ritchies IGA supermarkets chief executive Fred Harrison says IGA stores are achieving positive like-for-like sales growth — a sign the independent supermarkets’ market share is growing, contrary to analysts’ belief that share is shrinking and customer numbers are dropping.

UBS analysts warned in June that IGA supermarkets supplier Metcash’s margins and long-term market share in the food and grocery sector will fall, “creating earnings and share price pressure, not reflected in the current price”.

The UBS report cited discount supermarket chain Aldi’s expansion into South Australia and West Australia as the biggest threat to the independent retailers that Metcash supplies, including IGA, Foodland and Foodworks. But Mr Harrison argues that analysts are not factoring in solid like-for-like sales growth across the IGA network compared to Woolworths’ decline, which he says is a sign IGA is picking up market share from Woolworths. And he said IGA looked like its market share was shrinking because it was opening fewer new stores compared to rivals.

“If you look at the independents’ like-for-like sales, we are actually outperforming Woolies,” he said.

He said as Woolworths continued to leak market share, the independents were “absolutely picking up their customers”.

IGA’s like-for-like sales rose 1.4 per cent in the 12 months to April 30, compared to 0.7 per cent in the previous year, according to Metcash. Mr Harrison said the Ritchies, which has acquired 15 Fishers IGA stores in Victoria to bump its store count to 82, had like-for-like sales of 2.75 per cent during FY16.

Woolworths has had four consecutive quarters of declining like-for-like food and liquor sales with a 0.9 per cent fall in the third quarter — a sign it is losing market share — while Coles’ third quarter comparables were up 4.9 per cent. Mr Harrison said Aldi catered for a different market to IGA and while its low prices and expansion beyond the eastern states were placing pressure on all players in the sector, the independents were evolving.

“There is more confidence in the independent camp than what it has been in the last five years,” he said.

“Our model is working: we have found our niche and its all around points of difference.” Ritchies stores have been focusing on boutique and health food options, including supplements and protein bars more commonly found in health food shops. The chain has also employed qualified chefs and rolled out sushi bars across six stores.

Mr Harrison said the Metcash-driven strategy of matching Coles’ and Woolworths’ prices on a core basket of goods was also behind the IGA network’s turnaround. However he expects competition will intensify and food deflation — already at around two per cent — could fall further and in this environment, more smaller independents would sell to the bigger networks.

“The bigger multi-stores can sustain a bit more competition because they have a network to fall upon and what that does is make Metcash more secure,” he said.