Metcash sales and profit up, helped by its strong network of regional and rural stores

Metcash chief executive Jeff Adams says he is watching the takeover battle swirling around pharmacy wholesaler and retailer Australian Pharmaceutical Industries.

Metcash says it has benefited from the refurbishment of stores including those of supermarket chain IGA. Picture: Stuart McEvoy

Metcash chief executive Jeff Adams says he is watching the takeover battle swirling around pharmacy wholesaler and retailer Australian Pharmaceutical Industries, which has seen Woolworths jump in with an $872m offer, but at this stage does not see any huge competitive threat to his supermarket banner groups.

“Let’s see what happens there, but I think our stores are well ranged, I don’t think they are going to put pharmacies into the supermarkets, the Pharmacy Guild is not going to allow that to happen,” Mr Adams said.

“It is something we will keep an eye on, but again I tend to watch competitors that really stay ­focused on our strategy, not on theirs, and we will continue to work on making our retailers more competitive.”

If Woolworths wins its takeover battle against Wesfarmers, which has a lower bid in the market for API, it could hand to the nation’s biggest supermarket chain greater power in the health and wellness products categories, which could translate to better economies of scale and more competitive pricing – which could hurt competitors such as Metcash’s supermarket banners like IGA.

Meanwhile, Mr Adams said Metcash had continued to benefit from shoppers seeking supermarkets and retailers closer to home, as the growing shift of people moving away from cities to regional Australia also helped its network of independent stores.

The grocery, hardware and liquor wholesaler said on Monday it had continued to grow on the improvements recorded since the start of the pandemic, which triggered a rise in popularity for neighbourhood supermarkets, hardware chains and bottle shops.

The wholesaler unveiled its first-half result for the period to the end of October that showed revenue rose 1.3 per cent to $7.2bn, with net profit up 3 per cent at $128.8m.

Its shares surged on the news, and closed up 29c, or 7.34 per cent, at $4.24.

The group – whose banner chains include IGA, liquor outlets Cellarbrations and hardware stores under the Mitre 10 retail brand – said it had also benefited from the ongoing refurbishment of stores, broadening its e-commerce offer and improving its price competitiveness under its MFuture strategy.

It said strong sales had continued in the first five weeks of the second half of 2022 fiscal year, buoyed by the shift in consumer behaviour and improved competitiveness of its retailer networks. The food and liquor pillars are expected to benefit from a strong Christmas and New Year trading period and regional presence in its retail ­networks.

However, Metcash warned that it expected supply chain disruption, plus increased Covid-­related and labour costs, particularly in distribution centres in the second half.

Outgoing CEO Mr Adams said it had been a pleasing first half for Metcash and its independent retailers as it continued to build on the strong prior corresponding half.

“All pillars again benefited from the shift in consumer behaviour and improved competitiveness of our retail networks supported by the success of our MFuture program,” he said.

Mr Adams said Metcash retailers were benefiting from the demographic changes running through Australia led by a movement of people into rural and regional areas.

“I am encouraged by the first-half results that we achieved,” he said. “The preference for local neighbourhood shopping and shift from cities to regional areas helped our independent retail networks all deliver ‘like for like’ sales growth in the half.

“This is a significant achievement given the many challenges in the half including staff isolations, labour shortages, supply chain issues, continuously changing health regulations and other lockdown-related impacts.

“Despite the challenges presented by extended Covid-related restrictions and lockdowns, we continued to make good progress with our MFuture initiatives, and plan to accelerate these in the second half as restrictions ease.”

At Metcash’s flagship grocery pillar, total food sales fell 4.9 per cent, or 0.2 per cent excluding the fallout from losing the 7-Eleven contract. Compared with the first half of the 2020 fiscal year, total food sales increased 4.1 per cent, or 16.8 per cent excluding the impact of the lost Drakes contract and 7- Eleven.

Total food sales excluding tobacco increased 0.9 per cent. Total liquor sales were up 6.6 per cent at $2.17bn with hardware sales soaring nearly 18 per cent to $1.48bn.

In the first five weeks of the second half, supermarket sales were up 2.3 per cent, with liquor and hardware sales up 7.6 per cent and 20 per cent, respectively.

The group has increased its interim dividend by 31 per cent to 10.5c a share, which will be paid on January 28.