Metcash is attributing changes in supplier payments to the impact of rising interest rates and customer demands for extended discounts. The company, which is Australia’s largest food and grocery wholesaler for independent supermarkets, has given a five-month notice to suppliers, requesting faster payment processing.
During a recent supplier conference, Metcash CEO Doug Jones urged supermarket suppliers to improve their supply volumes to meet customer demand. He emphasized the need to enhance inbound service levels, which had suffered during the COVID-19 pandemic and remained below normal levels. Achieving a better balance in volumes would allow Metcash to allocate more capital to other growth opportunities.
As part of its efforts to strengthen cash flows and investment options, Metcash will implement new payment arrangements with its food and grocery suppliers starting from November 6. These arrangements will involve suppliers making faster payments that support in-store discounts for their products, thereby bolstering Metcash’s cash flow.
In a letter to suppliers obtained by The Australian, Metcash explained that the changes were necessary due to increasing funding costs, influenced by the rising interest rate environment. Moreover, the prevalence of longer promotional periods and campaigns in supermarkets, driven by retailers’ response to the cost-of-living pressures faced by shoppers, has added to the burden on Metcash. Previously, Metcash covered the costs of store discounts and later collected payments from suppliers, which sometimes took several months. Additionally, suppliers’ requests for more regular promotional claims have contributed to this shift.
The new process will require suppliers to fund these discounts on a weekly basis, rather than Metcash covering the costs upfront. While the funding costs borne by Metcash will still exist, this change aims to distribute the increased costs more fairly. The alteration will have minimal impact, if any, on claims for short-term price reductions.
Metcash provided suppliers with a five-month notice to inform them of the process change. The reasons behind this adjustment include the adoption of longer promotional periods to offer shoppers greater price certainty and value, as well as responding to suppliers’ requests for more timely and regular claims. It aligns supplier claims with Metcash’s payment schedule to customers.
During the early stages of the pandemic, Metcash experienced a significant increase in sales at its independent supermarkets, as consumers favoured local shopping and avoided larger shopping centres. The company’s food and grocery business, which generates approximately $9.5 billion in annual sales, has seen strong growth, with group earnings rising by 64% over the past three years and food sales growing around 20%. However, as the pandemic situation improves, Metcash is now grappling with the costs associated with higher inventory volumes and aims to collaborate with suppliers to mitigate this issue.
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