While shoppers face inflationary pressures and a rising cost of living, the cost of doing business is also up.
AMONG the many changes wrought by the arrival of COVID-19 was a seismic shift in consumer behaviour, driven primarily by a move away from large shopping centres in favour of neighbourhood supermarkets.
The scale of the trend was captured in the financials of supermarket wholesaler Metcash, which reported sales among its food retailers had climbed 13.4 per cent to $9.5 billion during the past two years.
Much of the profit was attributed to its 1,300 IGA stores having taken market share from major players Woolworths and Coles.
But after navigating the pandemic, the tight labour market and major supply chain disruptions, the sector has been dealt a new challenge: rising inflation.
The industry is bracing for a tug-of-war over shoppers, with Metcash urging smaller retailers to manage the impact of inflation to prevent customers gained during the pandemic from returning to the big two.
Already, food indices have risen across the board for the first time in almost four decades, and more than half of IGA’s suppliers have increased prices.
With Woolworths having committed to a temporary price freeze on essential items, Metcash has warned its IGA retailers that sales and gross profit could suffer if they chose to increase shelf prices as a means of coping with the growing cost of doing business.
The warning coincided with the release of new data from the Australian Bureau of Statistics, which showed the price of fruit in Perth rose 8.7 per cent during the past three months, with vegetables up 5.8 per cent, eggs up 3.8 per cent and bread 4.7 per cent.
A spokesperson from Metcash told Business News retailers could increase profits through volume growth from its unique offering, which included more competitive pricing.
“If prices are not competitive, they could lose sales and gross profit,” the spokesperson said.
“Our position has always been consistent: where suppliers put forward legitimate reasons for increases, we accept them.
“However, our focus continues to be on keeping our retailers at least as competitive in the market, even after the change takes effect.”
That approach could spell trouble for retailers, however, including those operating the 260 IGAs between Albany and Derby who are also facing increased rent and transport costs, utilities bills, insurance payments and employee wages.
This is particularly significant in Perth, which has the highest inflation rate of any capital city in the country at 7.4 per cent.
Among them is Geocath director George Rebelo, who owns four IGA supermarkets and two liquor stores in Perth’s northern suburbs.
Mr Rebelo said his businesses, like many other neighbourhood supermarkets, reported a growth in customer base, something he attributed to convenience, stock availability, good service and quality fresh offerings.
The businesses have retained a significant portion of the customers gained during the pandemic, but Mr Rebelo said the issue now was how it would keep them in the current economic climate.
“Our fresh offerings have always been good quality and we’ve got plenty of stock on hand, even if our prices are not as competitive,” he said.
“Now that the playing field has been levelled in terms of stock availability and the customer base, it’s become about how we’ll keep them and cope with inflation.
“We’re not innovators, we’re never first to market; we just follow the trends of the big two, who have made it very clear to the market that although inflation is upon us, they will continue discounting.
“Unfortunately, with a market share of nine per cent nationally, Metcash doesn’t wield the same clout that Woolworths and Coles do when it comes to suppliers funding reduced costs and pricing.”
For the time being, Mr Rebelo said he did not intend to increase pricing, instead absorbing the cost in a bid to remain competitive.
But he raised concerns about how long that could be sustained. “We will absorb these costs because the market isn’t allowing us to increase our prices,” Rebelo told Business News.
“I don’t know how long it can be sustained because inflation isn’t just the cost of goods, it’s also an increase in the cost of doing business.
“I fear the market has been manipulated by large multinational corporations, from supply, logistics and the manufacturing network, to those managing multiple shopping centers.
“They will be the ones that continue to thrive in this economy.”
