Metcash boss says shoppers are looking for value as cost of living pressures bite

The wholesaler’s profit has defied an economic downturn even as shoppers fill up on home brand groceries and frozen food to combat rising cost of living pressures.

Metcash boss Doug Jones says shoppers are hunting for value, opting for private label groceries and shifting to frozen from fresh foods as the food, liquor and hardware wholesaler juggles high inflation and a string of interest rate hikes.

Amid a deteriorating economic environment, households are stretching their budgets and making savings wherever possible with Metcash-aligned independent supermarkets grabbing the attention and loyalty of shoppers with price match offers and ‘every day low prices’ campaigns.

Mr Jones, whose wholesaler sells into thousands of independent supermarkets such as IGA, Foodland and Ritchies, as well as independent liquor outlets like Cellarbrations and hardware stores led by Mitre 10, said the impact of cost of living pressures and increased focus on value had helped put a handbrake on the number of items placed in supermarket trolleys and baskets.

Unveiling Metcash’s annual financial results on Monday, Mr Jones said there has been a noticeable change in some shoppers’ behaviour from early in 2023 to focus more on ‘value’ items, although this was not a dominant trend in the Metcash flagship food and supermarkets pillar.

“So, as you would expect, very much in line with what has been reported across the market and industry … I’d probably say that the most noticeable shift has been from fresh to frozen (food) but I do want to note it’s at the periphery, I would say, it’s not a fundamental shift across the entire landscape,” Mr Jones said.

“Generally, we are seeing a shift to value.”

The nation’s two biggest supermarket chains Woolworths and Coles have also reported a spike in private label groceries and a shift to frozen and tinned foods as households look to stretch their budgets. Both those major supermarkets will report their latest financial results in the upcoming reporting season in August, with Metcash giving an early indication of the pressures currently being felt by shoppers.

Supermarkets are reporting a spike in private label groceries and a shift to frozen and tinned foods as households look to stretch their budgets. Picture: Brendan Radke

“Our private label growth has been strong,” Mr Jones said. “We have seen strong growth in private label ahead of the trend, we have also seen really strong growth in our ‘low prices every day’ campaign as well as our price match program – which really does give shoppers confidence shopping with the network knowing they get all the benefits of shopping local without paying more.”

A stronger supermarkets arm building on loyalty won over through the early years of the pandemic when shoppers stayed close to home and shopped locally, and refurbished stores, has helped grocery, liquor and hardware wholesaler Metcash post a 5.5 per cent lift in its full-year statutory net profit to $259m.

Group earnings were slightly ahead of market expectations.

The market liked the results and on a day when the broader market was weaker, Metcash shares rallied almost 9 per cent and later closed up 17c, or 4.74 per cent, at $3.76.

The wholesaler said on Monday that its group revenue for the year ended April 30 rose 4.2 per cent to $15.8bn. Metcash declared a flat final dividend of 11c a share, payable on August 21.

Mr Jones said while food inflation was moderating there was a strong consensus that the RBA would need to lift rates maybe another two times to tame inflation and this would have an impact on consumers.

“And of course that’s having an impact on all shoppers across Australia, and we know that they are increasingly looking for value,” Mr Jones said.

“We are very focused on delivering differentiated value for our customers, and we do that in a very unique way. And we are very, very focused on that right now across all three of our pillars (food, liquor, hardware).

“We know that we had to manage our own costs so that our retailers can get products on their shelves at the best and lowest possible prices, so that they in turn can offer that value to their shoppers.”

Shoppers who turned to local independent supermarkets such as IGA in the early years of the pandemic are remaining loyal. Picture: Ian Currie

Turning to its latest results, Metcash’s food pillar continued to perform well delivering earnings growth of 3.8 per cent reflecting the strong trading performance and improved leverage, supported by an improved retail network that is more relevant and competitive.

Tobacco sales declined 6.8 per cent, reflecting the acceleration of illicit trade and continuation of the decline in smoking. Retail like for like sales growth in the IGA network was 0.9 per cent, or 3 per cent higher excluding tobacco. A record number of 39 new stores were opened in the year.

Food EBIT increased 3.8 per cent on a normalised basis to $204m reflecting the strong trading performance, which more than offset the impact of additional costs, particularly labour and freight. The Food EBIT margin was maintained at 2.1 per cent despite these additional costs.

The liquor pillar delivered a further 8.9 per cent increase in earnings while sales rose 8.3 per cent to $5.1bn, buoyed by ongoing strong sales to retail customers and continuation of the recovery in on-premise sales, which were cycling the adverse impact of Covid-related trading restrictions. Alcohol and beverage sales tapered in the fourth quarter, however, as the cost of living pressures dented consumer confidence and there was a switch to lower-priced, value beverage offers.

Hardware, led by its Mitre 10, Total Tools and Home Timber & Hardware banners, built on the exceptional earnings growth over the past two years, delivering a further 16.8 per cent increase in earnings. The strong growth reflects robust underlying demand and the increased contribution from majority-owned company and joint venture stores in its independent hardware group and its Total Tools retail stores, Metcash said.

In terms of outlook, solid sales growth continued in the first seven weeks of fiscal 2024 with all pillars continuing to perform well. Group sales increased 2.3 per cent, with the rate of growth in food similar, and hardware up, compared to the second half of 2023.

In food and supermarkets, sales were up 6.8 per cent for the first seven weeks of 2024, liquor sales up 1.2 per cent and hardware sales up 5 per cent.