Metcash: IGA supplier says food inflation coming down, hardware sales soft, reports $141m net profit after tax

Number four grocery retailer Metcash — the supplier of IGA supermarkets — says food inflation is moderating significantly from the same time last year.

In welcome news for consumers, food inflation was flat in the first four weeks of the financial year, well down from the 6.3 per cent over the previous period.

Metcash chief executive Doug Jones said Metcash was operating in a “highly value-conscious environment, (with) highly competitive pricing positions”.

Value-conscious consumers were driving sales growth in private-label groceries items and Mr Jones expected that trend to continue.

“Wholesale price inflation continues to moderate, just 1.8 per cent for the half, down to 1.2 per cent in October and only just positive for the first four weeks of the second half. Contrast this to the first half of last year at 6.3 per cent,” he said.

The inflation trend seen by Metcash comes as supermarkets are under intense scrutiny from the Australian Competition and Consumer Commission over pricing practices and the relationship between wholesale, including farmgate, and retail prices.

Last week, the Australian Bureau of Statistics reported food inflation was rising 3.3 per cent, including an 8.5 per cent rise in the price of fruit and vegetables.

Metcash on Monday reported a profit of $141.6 million, essentially flat on the same period last year.

Food sales increased substantially over the period following the acquisition of food service business Superior Foods which delivered an extra $550m in sales for a $14.3m profit uplift.

The company called out a challenging time for the construction industry, including its flagship Mitre 10 hardware store and Home Timber and Hardware, showing a decline in profitability.

“The rapid decline in trade activity led to a challenging half for our hardware pillar particularly in retail stores where lower volumes placed pressure on their margins,” said

Total hardware sales fell 15 per cent, with sales to the trade sector down 9.2 per cent and retail sales to the DIY segment down 6.4 per cent.

The businesses said it was responding to the current conditions through aggressive cost initiatives and expected trading in the hardware to be better in the second half.

A high point for Metcash was the performance of its liquor division which included brands such as Cellarbrations, the Bottle-O and IGA Liquor, and Mr Jones said that “the independents are continuing to win market share”.

Total liquor sales improved by 4.4 per cent, driven by a customer switch to value items.

“The highest growth categories were value RTD’s, spirits, beer, and wine categories with cost-of-living pressures driving shopper preference for lower-priced, better-value choices,” Mr Jones said.