Metcash warns of soaring food and grocery inflation

Metcash, a supplier to thousands of independent supermarkets, has warned about rising prices after food inflation in its wholesale business leapt to 5.3 per cent in April and 4.5 per cent in May.

Metcash chief executive Doug Jones said about 60 per cent of its food and grocery suppliers had approached it for price increases, with some making multiple ­requests.

Metcash and its network of independent supermarket chains, including IGA and Foodland, as well as other food stores continue to grab market share from the heavyweight supermarkets, reflecting a consumer shift to local stores during Covid-19 lockdowns that has stuck.

Mr Jones said consumers were realising they could get great value and range from independent supermarkets, with Metcash’s price competitiveness against the big players improving by 150 basis points in fiscal 2022.

“Looking back, shoppers have developed new habits. We think that they’ve rediscovered their local shopping environments and quite liked what they found. And most importantly, they found that they don’t have to pay more for that experience and that service that only locals can provide,” Mr Jones said.

On Monday Metcash released its full-year results, showing record sales, up 6.4 per cent to $17.4bn, as underlying earnings rose 17.7 per cent to $472.3m and full-year net profit increased 2.7 per cent to $245.4m. Underlying earnings were better than market consensus of $443m, mostly driven by increasing food inflation and market share gains generating better sales for independent supermarkets.

Hardware and liquor earnings were also better than expected.

Metcash declared a final dividend of 11c per share, up from 9.5c paid last year, and payable on ­August 10.

The market liked the result its sharpened competitive edge, with shares in Metcash gaining almost 9 per cent before closing up 1c, or 4.12 per cent, at $4.30.

Mr Jones, who replaced ­former Metcash boss Jeff Adams in March, said the supermarkets, liquor and hardware wholesaler had faced accelerating food and grocery inflation during the year.

He said overall inflation at its flagship supermarkets business accelerated to 1.9 per cent for the second half, up from 0.5 per cent for the first.

Inflationary pressures were evident across many supermarket categories.

“We are seeing increases across many categories. It’s not really limited to specific ones. We are seeing some suppliers that are coming back for a second increase, mostly those that asked for increases towards the end of our first half last year,” Mr Jones said. “And certainly the number of products that are having price increases has gone up.”

He said the pace of inflation would be evident in its business in the first half of 2023.

There was very “high price variability” in fresh produce especially, he said.

Mr Jones said inflation of 5.3 per cent for April was the highest monthly rate for fiscal 2022 in its supermarkets business, but this rate reflected the price increase as products left Metcash’s distribution centres and didn’t include any supplier discounts.

“We are continuing to work closely with our suppliers and retailers to help shoppers manage the impact of inflation by providing better-value options through offering a wider range of products at competitive prices.”

Meanwhile, Mr Jones said the wholesaler continued to benefit from a ‘‘local shopping’’ trend that led to booming sales in the worst months of Covid-19 lockdowns and had been sustained as lockdowns eased this year.

At its flagship supermarkets arm, total food sales increased 1.4 per cent to $9.5bn. Supermarket sales increased 3.9 per cent while like-for-like sales in the IGA network increased 2.9 per cent.

The strongest sales growth was in the states less affected by pandemic restrictions: Western Australia and Queensland.

Its hardware operations, including Mitre 10 and other chains and a majority stake in Total Tools, faced reduced construction and renovation activity due to limited supplies, disrupted supply chains, a tight labour supply and adverse weather conditions.

However, hardware sales increased 20.5 per cent to $3.1bn, reflecting significant growth in independent chains and Total Tools and the impact of acquisitions. Earnings increased by $55.3m or 40.7 per cent to $191.3m for the year.

Metcash said restricted residential construction and renovation activity would lead to a further strengthening of the pipeline of future activity.

Total liquor sales increased by 8.7 per cent to $4.8bn with a continuation of strong demand in the retail network and a recovery in on-premise sales.

Liquor EBIT increased $8.7m or 9.8 per cent to $97.4m.

Metcash announced it had signed a long-term lease agreement with the Goodman Group for the construction and leasing of a “best in class’’ 115,000sq m wholesale Distribution Centre at Truganina, Victoria.


Extracted from The Australian

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