australian retail update
Industry News,

Australian Retail Update: Metcash – Latest stats augmenting growth for UK Food and drink exporters

Metcash is the largest Australian grocery wholesaler in the Australian market, supporting the independent grocery sector (~18% of the retail market). Established for almost 100 years, ASX listed and operating across 3 key business divisions Food & Grocery, Liquor (Australian Liquor Marketers – ALM) and Hardware. For UK based businesses looking for strategic growth into the Australian grocery retail environment (and food service for Liquor) Metcash and their access into the independent sector differentiating on service, premium product range and access to branded innovation can be an interesting channel, whilst recognising it’s a different supply chain model than supplying into Coles Supermarkets or Woolworths. This week Metcash announced their first half results, providing a valuable insight into the health of the independent sector, customer demand and shopping habits and performance vs their strategy.

Top line Performance

  • Revenue increased 1.3% to $7.8bn, and EBIIT declining by 3.4% to $246.5m, with a positive contribution from Food & Grocery being impacted by performance in Hardware and increased corporate costs.
  • Food Business performed “very well” with earnings growth of 3.6% to $101.7m, with significant callouts including: – offer differentiation (giving consumers a reason to shop) and increased competitiveness (appeal to the value focused customer),
  • Liquor was strong with earnings up 3.0% to $50.8m with an increase in customers attributed to some of the growth.

Other key callouts included: 

  • Business resilience & strength
  • Range differentiation winning customer participation.
  • Progress in elevating its ESG credentials vs leading international benchmark.
  • Growth In the Eat at Home trend supporting food and Liquor growth.
  • High level of customers switching to value lines, which showed the highest growth.

Trading Results review

  • Total food Sales increased 5.7%, with convenience a key growth driver.
  • Wholesale price increases averaged 7.7%
  • Retail Sales growth 2.8%

Outlook

  • First 4 weeks of the second half are demonstrated sustained momentum as they enter the peak trading season.
  • Focus on costs and working capital forecast to strength the final year.

In our view whilst we are not yet seeing price deflation outside of fresh produce, good weather has helped the supply of fresh produce, meat prices are dropping, and this will be expected to have a beneficial effect across convenience meals or value-added lines as an example if the trend continues to improve.

Whilst Australian households and businesses have seen 13 interest rate rises since May 2022, and with the warmer weather the pressure on heating costs and energy will be less obvious, the underlying pressures remain.

What is the opportunity for UK Food & Drink businesses targeting growth in Australia?

The Private Label Market
This is experiencing significant growth, presenting food manufacturers with opportunities to expand their business. Competing on high volume lines where you can offer efficiencies through procurement, automation or volume remains a key opportunity as retailers continue to source internationally to access better commercial performance and invest in price. Additionally understanding the growth channels, trends and innovation requirements of the market enable UK manufacturers to offer access to turnkey innovation under the retailer’s Private label offer. Products developed and proven in other international markets that can be easily adapted to the Australian palate or consumer.

The Branded Opportunity
This is also experiencing growth as new brands rapidly enter the market to fill the innovation gap as consumer needs change, having the flexibility of a start-up and ability to innovate with agility giving them an advantage vs the major local brands driven on cost control and operational efficiency. Recognising the innovation within the UK food and drink sector this translates to an exciting opportunity for established UK businesses that operate a portfolio of brands and are innovating to gain market share in other highly competitive markets. The high level of appreciation or trust between consumers in both countries increasing the opportunity to win. Understanding the competitive landscape is critical to unlock these opportunities through the identification of product or range gaps and marketing messages that really resonate with consumers.

Outside of this trading update we know Australian consumers are continuing to shop for value, which is also creating an opportunity for premium products resulting in higher growth for lines such as meat, coffee, health & beauty, confectionary, wine and condiments as more consumers have that special occasion at home reducing the cost associated with out of home eating. This creates an opportunity for UK food and drink businesses that bring something different and have a clear USP away from the value play and can support brand growth in a new market. Additionally, health and wellness or sustainability continues to be high growth areas so products that have enhanced nutritional benefits or functionality are resonating well with consumers and retail buyers alike (high protein, added collagen, repurposed vegetables as examples).

In an increasingly competitive market being ready or prepared is essential before approaching one of the key retailers, understand the competitive landscape, regulatory compliance, supply chain requirements, marketing strategy and how to support the new business effectively are some of the key strategic questions to have considered.

Prof Consulting Group
Prof. Consulting Group will help lead your business to success in the Australian food industry with its team of industry-leading experts and extensive range of services. For more information or to discuss how Prof. Consulting Group can support your business, please visit https://www.profcg.com/contact/