Grocery wholesaler Metcash says there is no sign more supermarkets will abandon it, and has revealed it will refurbish more stores to help return its IGA network to sales growth amid fierce competition from competitors both old and new.
The company on Monday revealed a full-year after-tax loss of $149.5 million, down from a profit of $171.9 million last year, after it slashed the value of its food business by $345.5 million earlier this month.
IGA has swung to a full-year loss.Credit: Glenn Hunt
That writedown was partly the result of losing its largest South Australian customer, Drakes Supermarkets, which terminated its relationship with Metcash and will start sourcing its own groceries.
But Metcash chief executive Jeff Adams hosed down suggestions the company could lose more wholsale customers, particularly in South Australia, where it is trying to sign Foodland supermarkets up to use a new distribution centre.
“We’ve had absolutely no indication from any of the other retailers that they had similar intentions. In fact our conversations with the other Foodland retailers are going very well, and we suspect that we’ll get those results of their support very soon," Mr Adams said.
"They believe the way that the model is structured is the right model for the independent network - I think Drakes had a different view."
Mr Adams said that Drakes' decision to go it alone did not "make sense" given the size of its business.
Comparable sales at the almost 1700 Metcash-supplied IGA supermarkets and convenience stores fell 0.9 per cent in the year, as they came under pressure from competitors Coles, Woolworths and Aldi, which is continuing to expand in South Australia and Western Australia.
Mr Adams said the network was seeing growth in the eastern states but dragged down by weaker performance in the west.
The company will soon face additional presure for the German "hypermarket" Kaufland, which is set to open five stores soon.
But Mr Adams said a return to overall growth was possible, and announced an "acceleration" of Metcash's store refurbishment program. Some stores refurbished so far had experienced more than 10 per cent sales growth, he said. The company would also be putting a greater focus on fresh food and "ready to eat" meals.
Metcash will also start refurbishing smaller IGA convenience stores, which Mr Adams said had good real estate but product offerings that could be "significantly improved".
Underlying earnings before interest and tax, which excludes the impact of the write-down, increased 9.2 per cent to $332.7 million.
That growth was mostly thanks to the contribution of the Home Timber and Hardware business for the full year, compared to only seven months of last year.
Metcash's shares had jumped 4.1 per cent by 11am. The stock is still down 21 per cent over the past month, after investors punished it over the write-down.
Metcash also announced a $125 million off-market buy-back. The company said it could return this money to shareholders while still funding its future growth plans.