Metcash struggling with competitive Australian grocery conditions

Posted by AFN Staff Writers on 28th November 2016
Supermarket

Australian food and grocery wholesaler, Metcash, has been caught up in the difficulties of an increasingly competitive supermarket sector. Metcash today reported profits of AUD $82.8 million for the first half of its 2017 financial year, a 4.7 per cent drop on its profits for the same period last year.

Total food and grocery sales for Metcash, the supplier to IGA supermarkets, were AUD $4.49 billion, a 1.2 per cent decline on the first half year sales achieved in 2016.

Chief Executive Officer of Metcash, Ian Morrice, said the group was experiencing “positive momentum” in its liquor and hardware divisions, but its overall results were negatively impacted by an intense trading period for its food and grocery sector.

“Our focus remains on supporting Independent Retailers to ensure they are well positioned as ‘The Best Store in Town’, and while both our strategic initiatives and Working Smarter cost savings program are progressing well and delivering returns, they were insufficient to offset the impact of increased competition in this half year,” Morrice said.

Home hardware and liquor bring in Metcash’s profits

During the reported on trading period, Metcash home hardware sales increased by 9.6 per cent on the same period in 2016, to AUD $581.6 million. The group owns the Mitre 10 chain and in August 2016 acquired Home Timber and Hardware from Woolworths which is selling or closing all of its home hardware investments after the failure of its Masters chain.

Reflecting on the Home Timber and Hardware acquisition, Metcash said it is now placed in a number two market position within Australia’s home hardware market.

“The acquisitions of Home Timber and Hardware broadens our footprint in the hardware sector and, long with smaller acquisitions in the Liquor business, have diversified the Group’s earning base,” Morrice said.

Metcash’s total liquor sales increased by 1.6 per cent to AUD $1.56 billion for the reported financial period.

Convenience business

Convenience sales however declined by 2 per cent to AUD $758.5 million but Metcash said its convenience investments should become more profitable in the second half of its 2017 financial year with the completion of key contract negotiations and significant cost reductions.

The group also expects that its food and grocery business to perform better in the second half of the year.

“The second half of FY17 is expected to benefit from an additional trading week, Working Smarter cost savings, as well as the repositioning of the Convenience business which is expected to generate a positive earnings before interest and tax in the second half of the 2017 financial year,” Metcash reported.

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