Metcash CEO Questions Heavy Penalties Under New Grocery Code

Metcash CEO Doug Jones has raised concerns over the hefty penalties proposed under a revised mandatory code of conduct, arguing that these fines won’t necessarily lead to lower prices for consumers seeking value.

The federal government has accepted all 11 recommendations from Dr Craig Emerson’s review of the food and grocery code of conduct. This includes imposing penalties of up to 10% of annual turnover for significant breaches. Metcash could face fines up to $800 million, while Coles and Woolworths could be hit with $3.8 billion and $5 billion penalties, respectively.

Jones finds it hard to envision a scenario where Metcash would warrant an $800 million fine. “Without a clear outline of how such a penalty could be justified, it’s difficult to see it being warranted,” he stated.

While Metcash supports Emerson’s recommendations, it seeks more details on enhanced dispute resolution processes. Jones emphasised the importance of suppliers feeling confident in communicating directly with Metcash and suggested formal disputes should be a last resort, seeking clarity on the process.

Coles responded positively to the government’s adoption of Emerson’s recommendations, reaffirming its commitment to the food and grocery code of conduct. “We worked closely with Dr. Emerson to strengthen the code and will thoroughly review the final recommendations and the government’s response,” Coles stated.

Woolworths echoed similar sentiments, supporting the code’s mandatory nature and emphasizing the importance of healthy retailer-supplier relationships. “We welcome the retention of fast and cost-effective dispute resolution avenues, especially for smaller suppliers,” Woolworths stated.

As Metcash reported its full-year results, it highlighted plans to expand its private-label offerings amid rising consumer demand for value. With shoppers increasingly seeking discounts and promotions, Jones noted that Metcash’s stores are narrowing the price gap with major supermarkets, making it nearly unnoticeable.

In response to ongoing cost-of-living pressures, supermarket leaders observe consumers spreading their shopping across various retailers. Metcash’s unique offerings from local suppliers are performing well, with private-label sales rising 15.5% over the past year as consumers opt for more affordable options.

“We’re focused on delivering value for families and will expand our private-label range,” Jones said. Metcash’s private-label brands, Black & Gold and Community Co, currently comprise less than 10% of total sales, compared to Coles and Woolworths’ 30% and 21.4%, respectively. Seeing a shift towards Aldi, Coles is also expanding its exclusive brand range.

Metcash’s total group revenue increased by 0.7% to $15.9 billion, but underlying earnings dropped by 0.9% to $496.3 million. Underlying profit after tax fell 8.2% to $282.3 million, with statutory profit after tax down 0.7% to $257.2 million. This was impacted by challenges in the hardware sector due to high interest rates.

The hardware division, comprising IHG and Total Tools chains, saw earnings decline by 3.8% to $210.9 million. Despite these challenges, Jones remains optimistic about the need for new housing in Australia and highlights government support for increasing housing supply.

“While we’re not happy with the profit decline, it’s a solid result given the circumstances. We’re confident in our position and strategies,” Jones said.

Metcash’s results slightly exceeded market expectations, though shares fell 2.7% in afternoon trading. UBS and E&P Capital Analysts noted a slow start to the new financial year. Metcash reported flat sales for the first seven weeks of fiscal 2025, excluding the recent Superior Foods acquisition.

“Management is handling the tough environment well, but investor concerns will likely persist due to weak sales results,” said E&P Capital retail analyst Phillip Kimber.

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