Overview of Metcash Limited in the Australian Supermarket and Grocery Stores Industry

The report aims at providing an overview of Metcash Limited, a marketing and wholesale distribution company of Australia. It discusses the company's performance, strengths, weaknesses, and market competition in the Australian Supermarket and Grocery Stores Industry.

Running head: MANAGEMENT

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Business Research
Name of the Student:
Name of the University:
Author Note:

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Executive Summary:
The report aims at providing an overview of Metcash Limited, a marketing and wholesale
distribution company of Australia. As reported by IBIS world, the Supermarket and the Grocery
Stores industry of Australia represented a $102 billion industry that has an expected growth of
2.2 percent in the year 2017-18 as a result of the increasing demand of the premium grade food
products like the organic vegetables and fruits. The figures however show a declining trend of
about 0.6 percent from the year 2016-17. This has been calculated taking into account the period
marked by heavy discounting of the key supermarket chains. Nevertheless, the industry is
defined by the intense competition of prices.

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Table of Contents
Introduction:....................................................................................................................................3
2. Company:.....................................................................................................................................4
2.1 One Aspect the Company Excels at...........................................................................................5
2.2 Another Aspect the Company Excels at....................................................................................5
2.3 One Aspect the Company is Criticized for................................................................................6
3. Conclusion & Recommendations................................................................................................6
References:......................................................................................................................................8

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Introduction:
The market share of some of the major market players of Australia include:
Major Player Market Share during 2017-18
Metcash 7.4 percent
ALDI 9.2 percent
Coles 30.3 percent
Woolworths 37.2 percent
To improve the focus on Australian Food division, Woolworths reduced its prices for
undertaking better competition with Aldi and Coles. During the first quarter of 2017-18, the
average price of Woolworths reduced by 2.4 percent (ibisworld.com.au 2018). Woolworths also
made huge investment in customer service along with refurbishing and upgrading older stores for
boosting up demand. The performance of Coles has been the weakest during 2016-17 and it
experienced immense pressure not only Woolworths but also Aldi (sbs.com.au 2016). In other
words, sales growth of Coles has been only 0.3 percent. However, by the end of 2017-18, the
market share of Coles is expected to rise by 30.3 percent. As far as Aldi is concerned, its
growing expansion has helped the company in earning a market share of 9.2 percent by 2017-
18(corporate.aldi.com.au 2019).
On the other hand, individual operators who operate under Metcash store network like
IGA continue to suffer from the price competition of Woolworths, Aldi and Coles (metcash.com,
2019). The half yearly results of Metcash during 2017-18 witnessed fall in sales of the IGA

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supermarket by about 0.8 per cent. Thus, the struggles of Metcash continue throughout the entire
financial year with market share growing by only 7.4 percent during 2017-18.
The Supermarket and Grocery Store industry also experienced challenges with the entry
of Amazon Fresh as it made online sales a viable option for the industry (Heffernan 2016). The
revenue of the online grocery industry is expected to grow by 12.4 percent on an annual basis.
To be a par with this, Woolworths and Coles worked on the online channels of sales through
investment in the customer data analytics and click and collect options. The key players within
industry were also threatened by the launch of David Jones’ standalone food store in Melbourne.
2. Company:
Metcash Australia is one of the leading distributor and wholesaler of Australia supporting
and supplying over close to 10,000 independent retailers across the grocery, food, liquor and the
hardware sectors (annualreports.com 2017). The focus of the company remains in supporting
booming independents and becoming one of the best stores in town and aiding them with
operational, merchandizing and marketing support. The vision of the company lies in becoming
one of the best partners of choice for the independents and the suppliers. Metcash Limited looks
forward to thriving communities and meeting customer demands. Integrity acts as the foundation
of the company where people remain not only accountable but also empowered.
Metcash Limited has a distribution network that deliver product to over 10,000 retail
premises and an additional wholesale customer across grocery, food, liquor and the hardware
market(metcash.com 2019). The company ensures that the independent and the wholesale
customers remain supported by the distribution centre in major cities and in the regional areas.

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2.1 One Aspect the Company Excels at
During the year 2017-18, Metcash Limited faced tough external conditions especially in
the supermarkets which resulted in price deflation at higher levels (annualreports.com 2017). The
strategy of the company continued to focus on providing service to the independent retail
business so that they are able to thrive across market. One of the aspects where Metcash Limited
excelled in has been the earnings performance which showed that the underlying profit after tax
payment rose by 9.3 percent compared to the previous year that was close to about $194.8
million. This excluded $22.9 million costs associated with the integration and acquisition of
Home Timber & Hardware Group (HTH) and the restructuring cost associated with Working
Smarter program that simplified the way of doing business. The earnings per share have been
17.9 cents and the 20.3 cents that also included $22.9 million cost. The achievement of the
Working Smarter Program reflected considerable dedication and effort from the people.
2.2 Another Aspect the Company Excels at
Metcash Limited has also highlighted a stronger cash performance on the financial front.
This, along with the equity raised for funding HTH acquisition acted as key driver in reducing
the debt from approximately $194.7 million to about $80.8 million (annualreports.com 2017).
This has helped in strengthening the financial position of Metcash which had been a strategic
priority for the company. The most significant achievement has been the reduction of debt by
about $690 million since the financial year 2014. In fact, this placed the company in a stronger
financial position that encouraged the Board to put forward a decision regarding
recommencement of the dividend with a 4.5 cent declaration per share. The board also
introduced dividend payout ratio of about 60 percent for the financial year of 2018.

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2.3 One Aspect the Company is Criticized for
In the year 2010, Metcash tried to enter into a new agreement with the ‘Pick n Pay’ for
acquiring all the issued shares of Franklins, a supermarket and grocery store in New South
Wales. This would allow Metcash to also venture into the retail sector in addition to its
expansion into wholesaling. This was opposed by Australian Competition and Consumer
Commission (ACCC) in September 2010 since it believes that the acquisition would
substantially reduce the competition (liv.asn.au, 2013). The main concern for ACCC however
focused on limited wholesaling operations of Franklins instead of the expansion of Metcash.
Hence, Metcash Limited faced criticism since such acquisition would reduce the competition of
the wholesome packaged groceries to the independent supermarkets in New South Wales.
3. Conclusion & Recommendations
On a concluding note it can be said that the strategy of Metcash focused on serving the
independent business so that they can thrive in the market. The report also discussed how the
company excelled in enhancing its underlying profits and strengthened its financial position. The
year had also been crucial for Metcash Limited with acquisition of HTH Group. This helped the
company in developing a prominent hardware business. This helped in enhancing the scale and
thereby improving the competitive position thereby delivering better outcomes.
The recommendations are as follows:
1. Recommendations to Deal with Strategic Risk: Metcash should undertake measures
for preventing strategic risks since the consumer preference and behavior continues to change
and influence factors like the economic conditions, healthier living trends and enhanced choices

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in both the online and the retail options. It is recommended that Metcash should regularly
undertake review and development, review the plans and modify the approach wherever
required.
2. Recommendations to Deal with Market Risk: In order to deal with market risks that
evolves with the enhanced competition, Metcash should establish a product range led by strong
shoppers and reduce cost of doing the business. They should also encourage customers to engage
in Group.
Recommendations to Deal with Operational and Compliance Risk: The operations
undertaken by Metcash requires a compliance with the varied regulatory requirements that
includes food safety, environmental, public liability, industrial relations at workplace, legal and
financial aspects and security and privacy. Any kind of regulatory breach might have an impact
on the reputation, well being or the financial results of the company. Therefore, the company’s
internal process should be accessed regularly and tested as a part of the assurance and risk
program that addressed areas including the security, food safety, sustainability and responsibility.

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References:
annualreports.com , 2017. [online].Available at
http://www.annualreports.com/HostedData/AnnualReportArchive/m/ASX_MTS_2017.pdf[ acce
ssed 12 Sep, 2019]
corporate.aldi.com.au , 2019. [online].Available at
https://corporate.aldi.com.au/en/about-aldi/[ accessed 12 Sep, 2019]
Heffernan , M (2016). Amazon to open small stores, online supermarket in Australia.
[online].Available at https://www.smh.com.au/business/companies/amazon-to-open-small-
stores-online-supermarket-in-australia-20161028-gsd0nd.html/[ accessed 12 Sep, 2019]
ibisworld.com.au, 2018. [online].Available at
https://www.ibisworld.com.au/industry-trends/market-research-reports/retail-trade/food-
retailing/supermarkets-grocery-stores.html[ accessed 12 Sep, 2019]
liv.asn.au , (2013). Life in a parallel universe: Metcash and the merger counterfactual. [online].
Available at https://www.liv.asn.au/LIV-Home/Practice-Resources/Law-Institute-Journal/
Archived-Issues/LIJ-March-2013/Life-in--a-parallel-universe--Metcash-and-the-merg/[ accessed
12 Sep, 2019]
metcash.com , 2019. [online].Available at https://www.metcash.com/about-us/[ accessed 12 Sep,
2019]
metcash.com , 2019. [online].Available at https://www.metcash.com/about-us/thriving-
communities-icon-blue/[ accessed 12 Sep, 2019]

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sbs.com.au , 2016. Competition from Woolworths and Aldi, and a drop in consumer spending,
have slowed Coles' sales in the first quarter of 2016/17. [ online]. Available at
https://www.sbs.com.au/news/coles-sales-pressured-by-tough-competition[ accessed 12 Sep,
2019]