‘Not sure that could be justified’: Metcash boss questions billion-dollar penalties

The chief executive of IGA operator Metcash has questioned the high penalties proposed under a revamped mandatory code of conduct, which he said would not directly result in lower shelf prices for consumers who are shopping around to get value for money.

The federal government has embraced all 11 recommendations made by Dr Craig Emerson’s review of the food and grocery code of conduct, which would see supermarkets face maximum penalties of 10 per cent of annual turnover for significant breaches of the code. Under the proposal, Metcash could face maximum fines of up to $800 million while major players Coles and Woolworths could be penalised $3.8 billion and $5 billion, respectively.

Metcash group chief executive Doug Jones.Credit: Dominic Lorrimer

“It’s hard to imagine a contravention of the code that would warrant an $800 million fine to Metcash,” said group chief executive Doug Jones. “In the absence of somebody outlining that scenario for us, I’m not sure that we could see that that fine could be levied and justified.”

Metcash broadly supports Emerson’s recommendations but would like to see more detail about strengthened dispute resolution processes.

“We want to make sure that suppliers feel confident talking directly to us, and certainly that’s been their behaviour up and until now,” said Jones. “We believe in going through mediation and kicking off formal disputes as a sort of last resort … We just need some clarity.”

In its response to the government’s adoption of Emerson’s 11 recommendations, Coles said it was committed to the goals of the food and grocery code of conduct.

“Coles has worked collaboratively with Dr Emerson in his review to strengthen the Code. We will consider the final recommendations and government’s response in detail, and we remain committed to supporting a healthy and sustainable grocery sector,” it said in a statement.

Woolworths said it was considering the government’s response in detail and reiterated its support for the code becoming mandatory.

“We firmly believe healthy retailer and supplier relationships are key to the continued success of our sector, as well as serving the needs of millions of customers,” it stated. “We welcome the decision to retain fast and cost-effective avenues for dispute resolution for the benefit of suppliers, especially smaller ones.”

Metcash delivered its full-year results on Monday as it looks to expand its private-label offerings as Australians shop across different supermarkets for value for money.

Consumers are buying items on discounts and promotions more frequently, with chief executive Doug Jones adding that Metcash’s medium- and large-format stores were continuing to narrow the price gap with the major supermarkets.

“We don’t talk about the actual price gap, but it is very low now. I would argue that it would be almost unnoticeable,” said Jones.

Amid ongoing cost-of-living pressures, supermarket chiefs are closely watching the way Australians are taking more time and travelling further to spread their grocery shops across a range of retailers.

While Jones said Metcash’s differentiated offerings from local suppliers were holding up well in this environment, private-label sales have risen 15.5 per cent over the past financial year as shoppers trade down to more affordable options.

“We’re really focused on delivering value for families at the moment, and so we’ll now start to focus on a wider range of private labels,” he said.

Metcash’s private-label brands, Black & Gold and Community Co, make up less than 10 per cent of its total supermarket sales, lower than Coles and Woolworths, where private labels make up about 30 per cent and 21.4 per cent of sales, respectively. Coles chief Leah Weckert has noticed customers flocking to Aldi, and the company is expanding its own exclusive brand range as a result.

Metcash said total group revenue rose 0.7 per cent to $15.9 billion, but underlying earnings slid 0.9 per cent to $496.3 million.

Underlying profit after tax fell by 8.2 per cent to $282.3 million and statutory profit after tax decreased by 0.7 per cent to $257.2 million, driven by weakness in the hardware sector as building and construction businesses struggle under the strain of high interest rates.

Metcash’s hardware division, which consists of the IHG and Total Tools chains, saw earnings fall by 3.8 per cent to $210.9 million. Jones said he was reluctant to call a bottom to the building market’s woes, but he said hundreds of thousands of homes needed to be built in Australia and pointed to state and federal governments’ support in creating more housing supply.

“Nobody would argue that we’re happy with the profit decline, but that’s a really good result in comparison. We know our house is in order, we feel good about our position, we feel good about our strategies,” Jones said.

Metcash’s results generally came in slightly above market expectations, but the share price was down 2.7 per cent in afternoon trading.

Analysts from UBS and E&P Capital noted a slower start to the new financial year, which Metcash said was flat for the first seven weeks of fiscal 2025 when excluding the recent Superior Foods acquisition.

“Management continues to do a good job managing the business in a tough environment. However, we expect investor concerns will remain given the weak sales result,” said E&P Capital retail analyst Phillip Kimber.

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