IGA, Foodland sales growth slip but shoppers still taking a shine to independents says Metcash boss

Metcash supermarkets such as IGA and Foodland have lost some market share to their heavyweight rivals, the CEO has conceded.

Metcash supermarkets such as IGA and Foodland have lost some market share, the CEO has conceded, but shoppers still enjoying the offer of the independent chains. Picture: Brendan Radke

Metcash chief executive Doug Jones has conceded the wholesaler’s independent supermarkets such as IGA and Foodland have lost some market share to their heavyweight rivals Woolworths and Coles, however its stores were still very competitive and offering value-focused shoppers value for money.

Speaking to The Weekend Australian before the supermarket, liquor and hardware wholesaler’s annual general meeting on Friday Mr Jones said excluding tobacco sales his supermarket arm was still growing at a healthy clip of 6 per cent, although food sales growth had moderated in recent months.

“It has slowed slightly. It’s not far behind our competitors, we probably have lost a small amount of market share,” Mr Jones said as a trading update presented to shareholders at the AGM revealed for the 18 weeks to September total food sales, ex-tobacco, was up 6 per cent but only up 1.1 per cent including tobacco.

This implied, argued analysts, that Metcash’s supermarket sales had slowed recently to be at around half the growth rate of Woolworths and Coles in the fourth quarter and that its supermarket banners were losing market share.

“I’m really pleased though that 6 per cent (growth) is underpinned by the fact that our foot traffic is still up. We’re still growing foot traffic in this period. And that means the shoppers are continuing to include IGA in their repertoire. It’s a consistent theme from me, and from the market, that shoppers looking for value and basket size and basket composition has changed. I feel pretty good about it, actually.”

He said basket count - a measurement of foot traffic in its stores - was up although Mr Jones declined to place a figure on that growth.

The supermarkets and food arm of Metcash is the largest part of its wholesale business, and its rise and fall can heavily influence the company’s financial performance. At its liquor arm, which includes retail banners such as Cellarbrations and Thirsty Camel, sales lifted 1.7 per cent for the 18 weeks to September as growth in its retail stores was partially offset by a fall in on-premise sales. The hardware arm, whose banners include Mitre 10 and Thrifty Link, saw sales lift 3.2 per cent with its Total Tools chain reporting 23.1 per cent sales growth over the period reflecting solid demand and the contribution from recent acquisitions.

Mr Jones said shoppers were always looking for value and value was the “relationship between perceived quality and perceived price” with Metcash improving the offer for its customers.

“Our proposition is a differentiated one, and the value offering is a combination of local, convenience, wide range, national brands and fresh products. So we do have a differentiated value proposition but we are very clear on what that is and I’m pleased that it continues to resonate.”

He said consumers were shopping across retail chains, looking for value and spreading their spending at his stores as well as competitors.

Analysts said the update from Metcash threw the spotlight on slowing sales at its largest and most important profit driver, the supermarkets arm, and suggested that the wholesaler’s independent supermarkets were losing market share.

Moderating sales at these independent supermarkets was in the face of growth at the majors, Woolworths and Coles, with Metcash supermarkets also particularly reliant on tobacco sales compared to its larger rivals.

“The implied last 11 weeks (Metcash supermarkets) sales growth is up 4 per cent, which compares to other listed supermarkets sales growth rates of 7.5 per cent - Woolworths fourth quarter - Coles up 8 per cent for the fourth quarter and ABS ‘supermarkets’ category 6.6 per cent,” said E&P Capital analyst Phillip Kimber.

“Management noted more consumers are shopping around for promotions/discounts, and there is a “continued strong focus on retailer competitiveness and differentiated value”.

“In our view, Covid (and associated spending on housing) had a material positive impact on Metcash’s key businesses. The food business benefited from localisation, less focus on value and better relative in-stock positions.”

Mr Kimber said he expected these trends would continue to unwind across fiscal 2024, and underpinned his expectations for earnings per share declines. E&P Capital has pencilled in EPS decline of 7 per cent in fiscal 2024 and consensus is for a 6 per cent fall.

“The trading update suggested independent supermarkets have continued to concede market share,” said Citi analyst Adrian Lemme.

“With wholesale price inflation (ex-tobacco and produce) accelerating to 7.3 per cent, we infer volumes are down materially. ABS reported 5.5 per cent year on year sales growth for the period between May-July, indicating independents have lost material share.

“Management called out that more consumers are shopping around for promotions/discounts. We expect this to continue given cost-of-living pressures,” said Mr Lemme.

“The trading update doesn’t dissuade our view that trading conditions will likely get tougher from here for Metcash’s businesses.”