IGA owner enjoys local love but inflation poses headaches

Rising fuel and energy costs are the latest headache for retailers like Metcash, that are already having to tackle a tighter labour market, inventory availability and lingering supply chain issues.

Rivals Coles and Woolworths acknowledged the impact of inflation on consumer spending when it offered price freezes on certain home-brand pantry essentials in June. Jones said their food prices had increased because of inflation of sales from their warehouse, but he remained confident in the consistency and loyalty of their customer base.

“I think the things that underpin the improvements in competitiveness and relevance is fundamentally the quality of the stores, the quality of the offer, pricing, range. Those remain intact, so we should expect to take some confidence into the second half of the year, and we certainly do.”

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Transparency around inflation and logistical challenges meant supplier partners continued to invest in the independent network, Jones said, while the firm worked to increase volume across the supply chain, and systems like the price match program monitored the competitiveness of their costs against other local stores.

Beyond price, Jones expressed confidence in their Diamond Store Accelerator program, which focuses on refurbishing store locations, as a means to retain and win customers during trying times. A total of about 760 stores have been given a facelift, including 49 so far this year, resulting in material growth in sales – approximately by 15 per cent on a like-for-like basis, according to Jones.

“The customers have the power to manage their own budgets,” said Jones. “We have a wide range of national products, we do have an offering of private brands, but it’s smaller than in chains. We believe value is much more than just price. It’s service, convenience, friendliness.”

MST Marquee analyst Craig Woolford noted that Metcash’s cost of debt had risen to 3 per cent in the first half of this fiscal year, adding that the retailer may be exposed to higher interest rates.

“Metcash has reported a strong [first half of fiscal year] result and given strong sales momentum, there should be upgrades in the order of 2 to 4 per cent to earnings per share at the end of the 2023 fiscal year,” he said.

“We expect Metcash’s divisions to hold onto customer gains over the next few years given a better positioned business and rational industry backdrop.”