Metcash takes a $7.9 million hit, with Woolworths deal hitting profit

ALDI’S expansion, plus a deal to buy Home Timber and Hardware chain from Woolworths, have hit IGA owner Metcash’s bottom line.

THE parent company of IGA supermarkets is in the doldrums, with profit and sales taking a big hit amid an Aldi-led shake-up of the grocery sector.

Wholesale grocery and produce distributor Metcash has today revealed its half-year net profit had plummeted 38.6 per cent to $75 million in the six months to October 31.

It blamed increased competition among supermarkets, the acquisition of Home Timber and Hardware from Woolworths, and the cost of implementing the Worker Smarter cost-cutting program, for wiping $7.9 million from its profit during the period.

Discontinuing operations had boosted profit by $35.1 million in the same period of last year.

Metcash supplies groceries to IGA, Foodland and FoodWorks supermarkets, Lucky 7 convenience stores and Campbells Wholesale, and alcohol to Cellarbrations and the Bottle-O.

Chief executive Ian Morrice said difficult trading conditions had hit revenue, which was nearly flat in the first half, rising by just 0.3 per cent to $6.63 billion.

“While both our strategic initiatives and Working Smarter cost-savings program are progressing well and delivering returns, they were insufficient to offset the impact of increased competition in this half-year,” Mr Morrice said.

He said the results were “negatively impacted by an intense trading period in the food and grocery sector, as well as a slowdown in the growth of consumer spending.”

THE ALDI FACTOR

Aldi’s national expansion has put pressure on Metcash, with the German discounter focusing on the IGA heartland of South Australia.

Discount shoppers queued up for bargains when the chain opened its first stores there at the beginning of the year.

South Australia will have 18 Aldi supermarkets by the end of the year and 50 in the long term, while Western Australia will have 20.

Metcash’s Food and Grocery sales declined 1.2 per cent to $4.49 billion and supermarkets sales dropped 1.0 per cent to $3.7 billion.

Wholesale sales declined 4.0 per cent amid sales of stores, store closures, and increasing competition, particularly in South Australia and Western Australia. Convenience stores sales also dropped, by two per cent to $758.5 million.

Food and grocery and supermarket earnings were sharply lower, while convenience stores reported an operating loss of $4.3 million, after posting a profit of $1.1 million in the same period last year.

RITCHIES IGA GOES GOURMET

The announcement comes after the largest owner of IGA-branded stores, Ritchies IGA chief executive Fred Harrison, hailed the success of a $5 million revamp that has transformed stores into up-market, gourmet supermarkets with artisan bread and bespoke peanut butter.

The first store to reopen in the new format had brought a 50 per cent spike in sales with the first week of opening the in the Victorian town of Dromana, Mr Harrison told Fairfax Media earlier this month.

Metcash said it expects convenience store earnings to rebound in the current half once contract negotiations are completed and cost-cutting measures are implemented.

“We continue to see positive momentum in our liquor and hardware pillars,” Mr Morrice said.

“Our focus remains on supporting independent retailers to ensure they are well positioned as ‘The Best Store in Town’.”

Metcash did not declare an interim dividend, as previously announced.

— With Dana McCauley.

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