Metcash reviewing structure and costs at flagship supermarkets pillar

The wholesaler to supermarket chains such as IGA and Foodland is reviewing its cost base in the face of intensified competition in the nation’s $130bn supermarket sector.

Wholesaler Metcash, which operates a sprawling network of supermarket, liquor and hardware retail banners, has kickstarted a review of its flagship supermarkets arm in the face of intensified food and grocery competition, aiming to slash costs with possible head office redundancies.

Metcash has established two working groups to review its supermarkets pillar – the company’s biggest profit engine – that will assess the structure of the business and what, if any, changes are needed to meet new competitive challenges.

According to insiders, a second project team within Metcash will focus on cutting costs, as recent investments in areas such as online and supply chains come under pressure from moderating inflation and falling sales revenue that is squeezing profit margins.

Both reviews, looking at its organisational structure and costs, could lead to redundancies at Metcash head office.

Within Metcash there is a particular sense of urgency to drive more efficiency and savings from the key supermarkets division, which is a wholesaler to thousands of supermarkets and convenience stores under banners such as IGA and Foodland and which last year delivered almost $10bn in sales and $204m in ­earnings.

This compares to sales of $3.38bn for its hardware arm and $5bn for liquor.

Supermarkets drive 40 per cent of Metcash’s total earnings.

The review is being pushed by Metcash’s recently appointed boss Doug Jones. It comes as the $130bn supermarket sector is facing intense competition from the majors Woolworths and Coles as well as disrupters such as Aldi, while moderating inflation brings down sales revenue.

During Covid-19 lockdowns and travel restrictions Metcash’s network of supermarkets did extremely well, benefiting from consumers shopping locally and avoiding large shopping centres where chains such as Woolworths and Coles are located.

Now, as shopping patterns return to normal and shopping centres are again a drawcard for consumers, independent supermarkets like IGA and Foodland are fighting to compete and hold market share won through the worst of Covid-19.

Metcash is also investing heavily in e-commerce, online and other platforms that are vital to remain competitive but come at a cost that must be borne mostly by the wholesaler.

A spokesman for Metcash said that as outlined in its recent fiscal 2023 results briefing, the company was continuing to actively manage increased cost pressures and focus on improved efficiencies, particularly in its distribution centres.

This would include ensuring it had the best organisational structure, especially at its supermarkets arm, as these cost pressures mounted.

“We are also continuing to focus on ensuring we have the right organisational structure to support our strategy and growth initiatives, as outlined at our last investor day.

“In food (supermarkets), this includes reviewing and ensuring we have the right capabilities, alignment of resources and accountability to support the acceleration of key growth initiatives such as loyalty and digital, including e-commerce, Sorted (our retailer/supplier marketplace), ‘network of the future’ and future supply chain. This all forms part of our strategic focus on ensuring our retail networks remain well positioned and relevant now and into the future,” he said.