Cost-cuts couldn’t help Metcash enough: Analyst

metcash

Metcash is an Australia’s leading wholesaler of grocery, food, liquor and other fast-moving consumer goods. The independent food retailer is undergoing margin pressure on getting squeezed by big chains like Woolworths and Coles as these supermarket giants are on quick move to devour independent retailers’ sales by opening new stores and introducing price cuts.

To withstand this cut throat competition, the company has come up with the differentiation strategy by improving the range of food products while bringing down the food distribution costs. But still Metcash’s underlying earnings from food and grocery distribution have been consistently going backwards for five years and is expected to continue. 

The group seems to expand their operation in those product lines which yield greater profit to the group, if compared to food business. This includes expansion of liquor wholesaling business and acquiring Woolworths’ hardware wholesale business.

Earnings attributable to liquor wholesale business has shown significant improvement on the back of attracting new customers across Australia. Earnings from liquor wholesaling makes a good chunk of contribution to the group which is noting less than 20% of group’s profit.

Some analysts are of the view that company’s short-term outlook is improving as deflation is easing and promotional intensity between Coles and Woolworths is falling. But on the contrary, other analysts believe that it is not possible for Metcash to cut costs forever, therefore at some stage it may require to make acquisitions or expand into new product lines or new offshore markets.

It’s also been heard on the street that Metcash (ASX: MTS) wholesale grocery sales have declined at a slower pace in the first few months of FY19 and the company is further on the outlook of cost-out opportunities.

Moreover, coming to the most recent update the company has announced the change in director’s interest today which records acquisition of 20,000 more shares by the director Robert Murray.

But following this update Metcash’s stock has been dragged down on ASX today. The stock has fallen by 1.439% to $2.740 on 5 September 2018 (6:42 PM AEST)

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