Pandemic proves a boon for independent retailers: Metcash

Coronavirus is helping to push shoppers back to independent stores as they shun more crowded retail giants, says wholesaler Metcash.

Sahmara Francis, on the checkout at Spano’s Supa IGA at Gatton in Queensland. Picture: ALI KUCHEL

The coronavirus pandemic has helped drive shoppers back to independent supermarket chains as they avoid more crowded retail giants, says wholesaler Metcash.

Often returning for the first time in years, shoppers are discovering refurbished and rejuvenated stores in partner chains such as Ritchies and IGA, as well as at the wholesaler’s network of hardware outlets, said Metcash chief executive Jeff Adams.

However, the surge in sales since March couldn‘t drag Metcash back into profit for fiscal 2020. It posted a full-year net loss of $56.8 million as impairments and writedowns totalling $268.5m battered its balance sheet.

“Clearly what we have heard the customers who have come back have commented very positively on their experience now, where they had gone away from IGA before and what the retailers are telling us is the new customers are saying ‘actually we haven’t been in here for a long time, the store has changed a lot, the range is better, the prices are better,’’ Mr Adams said.

“Same is true in hardware, where people were looking for their DIY projects, Bunnings was very busy and they decided to pass the Bunnings because either the car parks were full or queues outside, went to their local Mitre 10 or Home Timber & Hardware and actually found the shopping experience very pleasant.’’

Metcash is also looking to broaden its exposure away from supermarkets, announcing talks to acquire a 70 per cent stake in Total Tool Holdings, a leading player in the professional tool segment, for around $57 million.

Metcash is planning to expand its hardware reach by buying a 70 per cent stake in the Total Tools business. Picture: MARC McCORMACK

Mr Adams said many consumers looking to do DIY projects during the coronavirus lockdown had been put off by long queues at their local giant Bunnings generated by social distancing and store limits, and so had headed for Mitre 10 hardware stores instead.

Shopper enthusiasm for local, less crowded stores showed up in Metcash’s latest sales performance. Its core supermarkets arm reported sales growth (excluding tobacco) of 16.7 per cent for the first seven weeks of fiscal 2021, while hardware sales rose 9.4 per cent in the seven weeks from the beginning of May.

However Metcash’s results for the year ended April 30 were hit by the loss of a key supermarkets supply contract in South Australia, bushfires and then the coronavirus pandemic.

Gross revenue for fiscal 2020 rose 2.9 per cent $13 billion, but the net loss of $56.8m came after post-tax goodwill impairments and other charges of $242.4m in the first half.

The wholesaler’s flagship supermarkets division reported sales growth, liquor delivered its seventh consecutive year of sales growth and hardware returned to positive sales growth in the second half, thanks to a sharp lift in DIY projects activities.

While the wholesaler’s supermarkets arm also benefited from panic buying in March, the feedback from many of the retailers supplied by Metcash was that shoppers were discovering independent supermarkets for the first time, or returning after a long absence.

“In particular in the stores that we have refreshed, we called out that about 40 per cent of the network now customers are saying that ‘wow, the stores have changed a lot since the last time I was in here, I really like the new look and feel of the store’,” Mr Adams said.

However, the real test would be if customers stayed with Metcash’s independent stores after the pandemic.

“Will that stick, that is anyone’s prediction at this point, but clearly people will have had a much better shopping experience with all the work we have done over the last few years on the IGA offer.’’

For fiscal 2020, Metcash said total food sales increased 3.5 per cent to $9.1 billion, as like-for-like sales in the IGA retailer network rose 5.6 per cent. Food EBIT decreased 2.8 per cent to $177.5m.

In hardware, sales fell 1.3 per cent to $2.08 billion, reflecting the impact of the slowdown in construction activity on trade sales and the loss of a large Home Timber & Hardware customer. Hardware EBIT was in line with 2019 at $81.2 million.

Liquor sales rose 0.3 per cent to $3.68 billion as EBIT fell slightly to $70.6 million.

Metcash declared a final dividend of 6.5 cents per share, down from 7 cents per share last year, and payable on August 5.