Metcash Market Share Declines; CEO Jones Stays Positive

Metcash CEO, Doug Jones, has acknowledged that independent supermarkets under their umbrella, such as IGA and Foodland, have seen a reduction in market share compared to industry giants Woolworths and Coles. Nevertheless, he emphasized the competitiveness and value offerings of Metcash’s stores.

In a discussion with The Weekend Australian prior to Metcash’s annual general meeting, Jones highlighted a 6% growth rate in their supermarket sector, excluding tobacco sales. However, the growth rate of food sales has witnessed a slowdown recently.

During the AGM, a trading update revealed a 6% growth in total food sales over the past 18 weeks, excluding tobacco, which drops to 1.1% when tobacco is included. Analysts interpret this as a sign that Metcash’s supermarket sales are lagging behind Woolworths and Coles.

Despite this, Jones expressed satisfaction, noting that the 6% growth rate was supported by an increase in foot traffic to their stores. He underscored the trend of consumers seeking value, and how the dynamics of shopping baskets have evolved over time. He mentioned that there has been an uptick in foot traffic, but refrained from quantifying the increase.

The supermarket and food segment of Metcash remains a pivotal component of its wholesale operations, and its performance plays a crucial role in determining the company’s financial health. Other divisions, such as the liquor branch, witnessed a 1.7% growth over the said 18-week period. Their hardware division reported a 3.2% sales boost, with its Total Tools chain observing a 23.1% increase, influenced by robust demand and recent acquisitions.

Jones emphasized the unique value proposition offered by Metcash, stressing the balance between perceived product quality and pricing. Their strategy revolves around locality, convenience, a broad range of products, and fresh offerings. He observed that consumers often distribute their spending across various retail chains in search of the best value.

Analysts, however, indicated that the main point of concern was the apparent slowdown in sales within Metcash’s primary profit driver – the supermarket division. Compared to its major competitors, Metcash relies significantly on tobacco sales.

E&P Capital analyst, Phillip Kimber, commented on the changing consumer behaviors toward seeking discounts and promotions. He attributed the recent positive impacts on Metcash’s main businesses to Covid-related factors. Kimber anticipates these trends to revert in fiscal 2024, leading to potential declines in earnings per share. Another analyst, Adrian Lemme from Citi, also remarked on the challenging times ahead for Metcash, pointing out the heightened cost-of-living pressures on consumers and their growing tendency to seek promotions and discounts.

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