‘We’re not naive’: The plan to fix IGA’s ‘price perception’

IGA operator Metcash will focus on lowering prices in its smaller and medium-sized stores as it angles for value shoppers and competes more fiercely with major rivals Woolworths and Coles in a bid to become Australia’s first-choice supermarket.

Metcash chief executive Doug Jones said he was keen to shake off the “price perception” that IGA stores was more expensive than the dominant supermarkets, pointing to the expansion of products in its price-match program and 19.2 per cent growth in its private-label range.

IGA operator Metcash chief executive Doug Jones.Credit: Ben Symons/The Photo Pitch

“We traditionally have suffered from the perception that we were expensive compared to the majors, and that was true in the past … but it’s less and less true today, and really, certainly in our large stores, there’s basically no difference,” Jones said.

“Our focus now is on shopper perception of our price gap… we’re not naive. We know that that hasn’t kept up with the reality and we need to address that.”

Metcash’s profits rose 12.2 per cent to $141 million in the first half of the 2024 financial year, pushed up by higher earnings from its food and liquor businesses, which increased 3.6 per cent to $101.7 million and 3 per cent to $50.8 million respectively.

Sales volumes at the ASX-listed retailer, which also operates Cellarbrations, The Bottle-O and Porters Liquor, increased as inflation came down.

Although foot traffic has lifted, with Australians continuing to shop at IGA for its specialist and gourmet products, cost of living pressures have lowered the number of items per basket as customers do most of their grocery shopping at Coles and Woolworths first, a habit that Jones is hoping to shift.

“The improved ranging, store environments, programs campaigns and, of course, the improved pricing, has underpinned a real belief in our business, and more and more in shoppers, that the differentiated value offer that the local IGA stores provide something that you can take advantage of and not have to pay any more for,” Jones told investors on Monday morning.

“We will continue to work very hard to support that strategy, so that shoppers continue not only to include us in their repertoire, but to choose IGA first.”

IGA will double down on price-matching the major supermarket and step up its marketing campaigns. Ahead of Christmas, it has included seasonal favourites such as ham and pavlova in its price-match program.

Pavlovas have been included in IGA’s special price program in time for Christmas.Credit: iStock

Group revenue lifted 1.3 per cent to $7.8 billion. Sales from Metcash’s hardware business, which comprises 42 per cent of earnings, lifted 2.9 per cent to $1.8 billion, with an 18.2 per cent rise in sales from Total Tools offsetting a slight drop in wholesale sales from IHG.

The company’s share price lifted 1.4 per cent in afternoon trading as investors welcomed the update.

Metcash rivals Woolworths and Coles will be called to front a Senate inquiry about their market power and pricing decisions amid concerns they have been profiteering in a high-inflation environment.

Jones said he welcomed any improvements to competition in the grocery sector and signalled he was particularly concerned about Coles and Woolworths’ creeping acquisitions of other companies.

“We think that making sure that our independent retailers have the opportunity to compete in the market for new sites as well is important,” Jones said.

“We’re not looking for a free kick here … Metcash’s role as a large wholesaler is absolutely critical in the success of these independent stores.”

Woolworths recently moved to acquire PetStock but not without attracting the attention of the ACCC, which is running the ruler over PetStock‘s previous acquisitions in this space. The consumer watchdog also flagged competition concerns about Coles’ bid to acquire two of Saputo’s milk processing sites, but ultimately gave its approval for the deal to proceed.

MST Marquee analyst Craig Woolford said the company’s food sales were holding up well, suggesting that Metcash was hanging onto its customers, but noted margins from its hardware business had slipped and that cigarettes were falling out of favour.

“The tobacco headwind will remain a challenge to independent retailers given illicit tobacco and increasing vaping,” Woolford wrote in a note.

Jarden analysts said Metcash’s numbers were a “solid result in a tough market” but had expected hardware to be stronger and commended Metcash’s earnings outlook.

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