Metcash, grocery wholesaler and owner of the IGA brand, released a trading update earlier this week. The grim reality is that this reiterated the 19% – 26% decline in earnings versus the same period last year. So, while the market and the media have been focussed on Woolworths as the great loser of the supermarket wars, its the forgotten ‘independents’ who are truly feeling the wrath of the low-margin, low-choice option provided by Aldi.
Most analysts have spoken how Woolworth’s claims of growth in sales & market share must be misleading yet in their commentary they rarely consider the small guys. The local convenience supermarket is built on high-margin sales when you need it now but the proliferation of supermarkets has slowly squeezed the convenience concept. For many suburban families Coles, Woolworths or Aldi are probably closer than IGA or other smaller grocery store.
Sadly for Metcash the trend looks set to continue. In an attempt to keep up with the 3 major players Metcash are competing via aggressive promotions which will only further squeeze margins. Even more concerning is Aldi’s focus on South Australia and Western Australia in which its has little-to-no presence. These two states are Metcash’s last two strongholds and UBS estimates that approximately 50% of MTS’s profits are derived in these two states.
Anyway you slice it Metcash is the biggest loser and a recovery seems far off, if even likely at all.
This is general information only and should not be taken as personal advice. Please contact your adviser before acting on any information provided in this article.