The slowdown in consumer spending has significantly impacted the sales performance of Metcash (ASX:MTS), Australia’s third-largest supermarket group, in the first 18 weeks of its 2023-24 financial year.
In a trading update during Friday’s annual meeting, CEO Doug Jones reported that the group experienced sales growth of 1.7% across all segments, including food, hardware, and liquor. This figure is notably lower than the 5.7% growth achieved in 2022-23 and the 8.9% growth recorded in the same period a year ago, when interest rates were lower, and the economy was recovering from pandemic-related shutdowns and controls.
Metcash’s Peter Birtles mentioned at the meeting that, “While demand remains solid in all areas, the impact of higher interest rates and the cost of living is affecting consumer confidence and the behavior of some customers and shoppers in our retail networks.”
Metcash’s update covers the final two months of 2022-23 and the first two months of 2023-24, revealing that the weak trading conditions observed in June have persisted into the new financial year.
The update underscores that consumers are still cutting back on discretionary spending, such as dining out or renovating homes, opting instead for small DIY fixes. Food spending appears to focus on essentials, with no mention of the impact of lower fruit and vegetable prices compared to the previous year.
Additionally, the update does not address the impact of reduced spending and rising costs on trading margins. CEO Doug Jones added that “Demand and sales continue to be at solid levels with all segments delivering year-to-date sales growth. The increased cost of living is impacting some shoppers’ behavior, but the differentiated offer of independents continues to resonate with many.”
Total food sales (excluding tobacco) saw a 6% increase, or 1.1% if tobacco sales are excluded. IGA supermarkets’ wholesale sales, excluding tobacco, grew by 6.2% as more consumers sought promotions and discounts.
In the hardware sector, total sales increased by 3.2%, with Total Tools experiencing a notable 23.1% jump, reflecting strong demand and contributions from acquisitions. Independent Hardware Group (IHG), led by Mitre 10, reported a 1% decrease in total sales, following a strong performance in the previous year. The hardware group noted a 1.15% rise in do-it-yourself sales and a 0.5% improvement for trade buyers, maintaining solid levels despite a slight dip.
Metcash’s liquor business recorded a 1.7% rise in sales, driven by growth in the retail sector and partly offset by a decline in on-premise sales. There was a continued strong demand in the retail network and from contract customers, with an increase in preference for more value-oriented options, while on-premise patrons spent less.