Sue Mitchell
Aug 26, 2020
AFR
The shift in consumer spending towards smaller retailers and neighbourhood stores that helped wholesaler Metcash achieve record sales growth in May and June has accelerated, even though COVID-19 restrictions across most of Australia have eased.
In a trading update at its virtual annual meeting on Wednesday, Metcash said first-quarter sales had risen by more than 10 per cent in all three business pillars — food, liquor and hardware distribution — as consumers shopped at independent retailers including IGA, Cellarbrations, Thirsty Camel, Mitre 10 and Home Timber & Hardware.
“Financial year 2021 has started strongly,” said chairman Rob Murray.
A shift to smaller food, liquor and hardware stores due to the COVID-19 crisis has helped Metcash post record sales growth. Louise Kennerley
“We continue to see the shift to more local neighbourhood shopping across all pillars and we are now focused on ensuring the new and returning customers gained through the COVID-19 period are retained in our independent network,” he said.
Food sales rose 11.4 per cent in the first quarter (Metcash has an April year-end) or by 14.9 per cent excluding the loss of the contract to supply independent retailer Drakes, which has moved to self supply. This compares with growth of just 0.6 per cent in the same period last year.
Wholesale supermarket sales (excluding tobacco) soared 13.8 per cent, or 18.4 per cent excluding Drakes, after falling 0.5 per cent in the same period a year ago. This was a step up from the 16.7 per cent growth reported in May and June.
“We fully expected that things would settle down post that initial panic buying, but actually the trends of people shopping locally and cooking from home — a lot of people are still working from home — have carried on,” Metcash chief executive Jeff Adams told The Australian Financial Review.
“The trends of people shopping locally and cooking from home … have carried on,” said Metcash chief executive Jeff Adams. Louie Douvis
Liquor sales rose 11.4 per cent in the first quarter (compared with growth of 0.7 per cent in the year-ago period) after growing 5.5 per cent in the first seven weeks of the new year.
Liquor sales growth accelerated despite ongoing restrictions on retail stores and on-premise locations in Australia and New Zealand. Excluding customers impacted by the restrictions, liquor sales rose 23 per cent as consumers turned to local bottle shops for at-home supplies.
At Mitre 10 and Home Timber & Hardware, sales are booming as consumers undertake DIY projects at home.
Hardware sales rose 19.2 per cent in the first quarter after growing 9.4 per cent in May and June.
Mr Adams said the sales trends continued into August, although growth was strongest in states such as Victoria, where restrictions on travel and eating out remain high, and lowest in Western Australia, where life is returning to near-normal.
About 36 of Metcash-supplied hardware retailers in Melbourne have been forced to close stores to retail customers for six weeks under stage four restrictions, but are still supplying trade customers and trading online, offering click-and-collect and click-and-deliver.
Mr Adams said operating costs across all three pillars remained elevated to meet demand and comply with health and safety requirements.
“They’re not at the same levels as what we saw in March and April but it is elevated,” Mr Adams told the Financial Review. “All we’re trying to say is don’t estimate sales will be flowing through at a normal costs rate because there is some elevated cost.”
For example, Metcash’s food distribution centres in Melbourne have had to split shifts and reduce staff to comply with stage four restrictions. The hardware business had been forced to ship goods from the Derrimut distribution centre in Victoria to the Queensland distribution centre to supply NSW and ACT stores, leading to higher freight costs.
The additional costs were not quantified but Citigroup analyst Bryan Raymond fears higher costs will reduce operating leverage and crimp profit growth this year.
“As a result, we see greater upside risks to consensus 2021 sales forecasts than earnings,” Mr Raymond said.
Shareholders approved the remuneration report by 98.9 per cent after a 20 per cent protest vote last year.
Mr Murray said it would be inappropriate for executives to benefit unduly from COVID-19, including the surge in sales in the last two months of 2020, so the board has deferred any increases to fixed remuneration of senior executives until trading settles down and has based vesting of short-term and long-term awards on pre COVID-19 outcomes.
Metcash shares rose 2.4 per cent to $2.99, taking gains this year to more than 15 per cent.
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