Independent supermarkets, including major names like IGA, Foodland, and Romeo’s, are urging their primary wholesaler, Metcash, to allow for increased margins. The request comes in the backdrop of these chains grappling with the increasing costs of rent, energy, and wages.
Despite their efforts to stay competitive with large players like Woolworths and Coles, these chains have been battling internal operation costs, which are diminishing their already narrow profit margins. A significant issue is the rising rent due to inflation-adjusted agreements, which continues to erode their profits.
Throughout the year, these supermarkets, represented by the National Retail Council (NRC) and various state councils, have been in direct talks with top Metcash officials. They’ve had discussions with Metcash’s CEO Doug Jones and head of food, Grant Ramage, emphasising the need for improved margins.
The NRC, playing a pivotal role in these conversations, has consistently communicated the financial strain these chains are under to Metcash’s leadership.
The main contention revolves around the pricing of promotional food and grocery items. Metcash determines the prices of these items, crucial in keeping the independent chains competitive against Woolworths and Coles, especially during times when consumers are highly conscious of the cost of living.
Now, with these independent supermarkets maintaining low shelf prices but dealing with mounting business costs, they are pushing for Metcash and other significant suppliers to reconsider their prices. Joseph Romeo, NRC chairman and head of Romeo’s, a significant independent supermarket chain, stated that Metcash has been understanding and is considering options to alleviate some of the price pressures at the wholesale level.
Romeo’s, with 40 stores across South Australia and NSW, is one of the largest chains in partnership with Metcash. The food division of Metcash, which also operates in liquor and hardware wholesaling, contributes to 40% of the company’s earnings, primarily by supplying to independents like IGA, Foodland, and Romeo’s.
Highlighting the challenges, Mr. Romeo mentioned that while energy costs have surged by over 20% and rents have spiked, the traditional Consumer Price Index (CPI) has also risen from 1-2% to 5-6%. Along with these, wage costs have also climbed.
Mr. Romeo believes there’s potential for more efficient operations and better cost management in collaboration with wholesalers. He highlighted the renewed affinity shoppers have shown towards local brands like IGA during the pandemic, emphasising the importance of staying competitive and the pivotal role wholesalers play in achieving that. He concluded by acknowledging the critical feedback and challenges presented by various supermarkets at the NRC meetings.
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