Metcash (MTS) shares fell 4.9% yesterday (making it one of the biggest fallers on a generally positive day of trading) after media reports emerged of the retail/wholesaler have trouble driving sales growth.
The shares ended at $2.31 yesterday afternoon, down from the most recent peak of $2.43 reached last Friday.
The media reports claimed Metcash was working with IGA retailers and suppliers on a new price matching program aimed at trying to stop a slide in the group’s grocery market share loss, The reports say this loss of share has accelerated since Woolworths stared getting its act together late last year to stem the slide in sales and margins in its huge supermarkets business.
Industry sources were quoted as saying that Metcash was preparing to invest another $40-50 million into cutting grocery prices under the second round of its Price Match program which cuts prices on key grocery items to match those at Coles and Woolworths.
The first program was launched by Metcash CEO Iain Morrice in 2014, to stem the drop in Metcash’s wholesale revenues and grocery market share. The program boosted same-store sales at participating IGA retailers, who part-funded the price reductions with contributions of their own.
Comparable store sales in IGA supermarkets rose 1.4% in 2016, twice the rate of growth in 2015, and topline sales at about 960 stores that ran the matched prices scheme rose by an average 3%.
To limit the damage to its revenues and margins Metcash is looking for supplier support to fund part of the investment in price cuts. Metcash’s food and grocery distribution margins have more than halved in the past five years from 4.8% to 1.9%.
Metcash balances its full year at the end of April. So far theres no talk of this action being needed in its Mitre 10 and other hardware businesses.
