Independent supermarket retailer IGA has decided not to take a back seat in the supermarket wars and has come out swinging.
Following disappointing financial results last year, Metcash Limited (ASX: MTS), the supplier and wholesaler to 1,365 IGA stores and a further 1,000 independent stores has announced a range of measures to put itself back in the frame with consumers and households. That includes 484 FoodWorks, 117 Foodland and 245 Lucky 7 (convenience) stores.
In a recent Choice supermarket survey, IGA stores were found to be 8% more expensive than even Coles – owned by Wesfarmers Ltd (ASX: WES), and Woolworths Limited (ASX: WOW).
Metcash has announced several initiatives its franchise stores are rolling out, including Price Match, where stores will match prices with major retailers on a weekly basis. So far it has been implemented in around 600 stores, with more than 2,000 product prices dropping, according to the Adelaide Advertiser.
Independent supermarket retailers have so far been losing the supermarket wars, with newcomers Aldi and Costco stealing market share predominantly from them and Metcash. The retailer has an estimated 11% market share according to Moody's in March 2015, slightly ahead of Aldi on 8% and well behind Coles and Woolworths with 26% and 37% respectively.
Roy Morgan has Aldi with 10.3% and Metcash with 8.5% of the market, with Coles and Woolies on 3.5% and 39% respectively. But given the number of stores (~2,400) Metcash has under its umbrella, it has a fairly low market share.
While most market commentators have been worried about Aldi's impact on the supermarket sector and Woolworths in particular, most have been dismissive of Metcash's efforts and seen it as an 'also-ran'. But that's far from the case. With several initiatives designed to steal back market share from Aldi, Coles and Woolworths, IGA and Metcash may be about to make a comeback.
As well as the Price Match strategy, Metcash is also rolling out a more competitive Private label pricing strategy into a further ~500 stores. The company says it has already seen an improvement in sales from the Price Match strategy, and the Private Label pricing. A Diamond Store Accelerator program is also being rolled out to a number of stores, basically being refurbishments, and Metcash says it expects an uplift in wholesale sales by 16%.
That comes as Aldi spends up to $750 million ramping up its offering in South Australia and Western Australia. 20 stores are expected to open in South Australia in early 2016 and 20 stores planned for Western Australia should open for business in the second half of 2016.
It remains to be seen whether these strategies will increase Metcash's market share substantially, but clearly the supermarket war is now a 4-horse race between Aldi, Metcash, Coles and Woolworths as well as the independents.
