A fresh round of inflationary pressure is set to be unleashed across the supermarket aisle after leading grocery wholesaler Metcash, whose chains include IGA and Foodland, informed hundreds of grocery suppliers the cost of promotional activity like catalogues and sales events would be hiked by 3 per cent from May.
Metcash has admitted in its communication to the nation’s grocery suppliers and manufacturers that it has to date absorbed rising costs related to its promotional activity done on their behalf and that it had to claw back some of those costs by passing it on to them.
The swollen costs Metcash has swallowed to date include steeper pricing for promotions such as delivering its catalogues such as paper, printing, labour and freight.
The internal memo sent by grocery wholesaler Metcash to a wide array of its suppliers, and obtained by The Australian, underlines the inflationary pressures now gripping the $100bn supermarket industry, made worse by the impact of Covid-19 as the pandemic plays havoc with supply chains, labour and the cost of doing business.
The Metcash memo with the new and higher pricing structure was sent to some of the biggest brand owners in the supermarket aisle such as global giants Nestle, Kraft Heinz and Mondelez as well smaller players like beverages company Nippy’s and health food business Parilla Fresh.
Also on the group email informing of the upped charges was billionaire Raphael Geminder’s packaging company Pact, food ingredients company Goodman Fielder, the owner of Four N Twenty pies brand, Patties, plus dozens of suppliers from categories like meat, seafood, healthcare and fresh food.
While the new pricing imposed by Metcash is linked to trade terms with suppliers and will not directly be felt by shoppers, yet, it will place further pressure on food and grocery suppliers who are already buckling under the rocketing costs of everything from packaging and fuel to labour and wooden transport pallets — forcing them to eventually make up the higher costs somewhere else.
Metcash merchandise director for its food arm, Grant Ramage, said in his letter to suppliers that the rate used for brand promotional activity and events — like catalogues and sales events — was set two and a half years ago.
It was this rate, known internally at Metcash as the “rate card”, that generates the value and level of services Metcash provides in return for the payments it received from suppliers and which would now need to rise to keep pace with the higher inflation running through the Australian economy.
“Our intention was always that the rates would keep pace with inflation but to date, they have remained unchanged,” Mr Ramage said to suppliers.
“We will be implementing an increase of 3 per cent effective from the first promotional week of our new financial year, i.e. week 18, which starts on 4th May.”
Mr Ramage said in the memo emailed to hundreds of suppliers on Tuesday evening that Metcash could no longer absorb the higher costs and this was why the 3 per cent increase needed to be enacted.
“This is necessary because, in common with many of our suppliers, we are seeing significantly higher input costs. While we can absorb some of these, we do have to pass on a reasonable increase, and we are confident that our program continues to represent excellent value for your investment — particularly with a more effective promotional program and improvements in the quality of execution in the IGA network.”
Metcash later told The Australian there was an error with the email distribution list which meant that a number of suppliers received the communication which shouldn’t have and this was being rectified.
Suppliers who spoke to The Australian said they were disappointed with the higher charge which for their businesses meant they would have a higher hurdle to pass in terms of sales volumes done through wholesaler Metcash and its supermarkets such as IGA and Foodland to get the same level of promotional activity it once enjoyed.
It would be an extra impost on their businesses and they would need to in return attempt to claw back that charge somewhere else or on another player in the supermarket sector.
A spokesman for Metcash said that for the last two years, Metcash has absorbed increases in the cost of delivering promotional activity for suppliers to the food pillar, its supermarkets arm, and now found it necessary to pass on some of these increases to relevant suppliers.
The spokesman said this had been done in consultation with suppliers and would not see a rise in shelf prices.
“Where these increases apply, Metcash has already been in discussions with the suppliers. It is important to note that this is in no way an increase in product prices to our retailers or for shoppers.
“The significant improvement in the competitiveness of our retailers in recent years has been underpinned by competitive prices, extensive product ranges tailored to local communities and quality stores. There has been no change to this approach.”
The spokesman said Metcash would not be changing trading terms for suppliers nor making extra deductions from invoices.
The Australian Food and Grocery Council which represents the $130bn food and grocery manufacturing sector was unavailable for comment.
Metcash is the third key player in the $100bn supermarkets industry through its thousands of independent supermarket chains under banners such as IGA, Supa IGA, Ritchies and Foodland. It, like heavyweights Woolworths and Coles, have been facing strong inflationary pressures in the cost of doing business in the wake of the pandemic such as hiring extra staff, cleaning stores, supply chain disruptions and other input costs like energy and shipping.
Extracted from The Australian
