Metcash benefits from diaspora to neighbourhood shopping

After delivering a beat to consensus within its FY22 results, Metcash (ASX: MTS) today advised shareholders that strong sales momentum has continued into the first half of fiscal 2023 across all its key business arms – supermarkets, liquor and hardware – as consumers continue to prefer shopping locally.

Hungry for good news from the struggling supermarket sector, investors pushed the share price of Australia’s largest supplier to independent supermarkets (IGA and Foodlands stores) 1.58% higher at the open.

Despite supply chain, stock availability, and labour cost pressure, management advised the market that group sales rose 8.9% in the 17 weeks to August 28.

Other notable improvements within the S&P/ASX200 company’s update today included:

• Food sales up 4.3%

• Supermarket sales up 3.4%

• Hardware sales (including brands Mitre 10 and Total Tools) up 19.5%

• Independent Hardware Group (IGH), same-store sales year-to-date up 7.3%

• Liquor sales up 11.5%

• Wholesale sales to Independent Brands Australia (IBA) on-premise customers up 35.3%

Shift to neighbourhood shopping

Recently appointed chairman Peter Birtles - formerly Super Retail Group (ASX: SUL) CEO - told investors that the wholesaler is benefitting from a continued shift to convenience and local neighbourhood shopping.

However, Birtles notes the availability of labour remains very tight and the retailer is facing higher supply chain labour costs.

Overall, the wholesaler is benefitting from higher wholesale inflation, up 4.9% in the first quarter, excluding tobacco and produce.

Despite covid accelerating the shift to neighbourhood shopping, Birtles believes Metcash’s five-year growth “MFuture program” has provided the foundation for sustained outperformance over the past two years.

Birtles believes sustained momentum into the first half of FY23 is clear evidence that shoppers are continuing to enjoy the improved competitiveness of network stores, and the service levels of independent supermarkets.

Recent developments

The surprise exit of former CEO Jeff Adams saw new CEO Doug Jones take the reins in February.

IGH is building a network of around 400 Mitre 10 and around 200 Home Hardware stores.

Around 20 ThriftyLink/True Value stores have been converted to Home Hardware, and an additional 30 are planned for fiscal 2023.

There is a major focus on growing emerging DIY categories such as kitchen/laundry/bathroom.

Meantime, Metcash expects to build a network of around 130 Total Tools stores by 2025 and is targeting further store upgrades and adding exclusive brands.

Metcash share price over 12 months.