IGA and Foodland supermarket owners have been told by Metcash, the company that runs the network, not to increase shelf prices as inflation soars because it will actually make them less money.
It is concerned pushing up prices will see customers ditch the independent retailers for Coles and Woolworths after fading IGA sales made a comeback during the pandemic.
Metcash told news.com.au the plan is for its supermarket retailers to grow their gross profit through volume growth by providing customers a “differentiated offer”, which includes competitive prices.
“That is, if prices are not competitive they could lose sales and gross profit,” a spokesman said.
He said the differentiated offer of the IGA network was “the convenience of local shopping, wide ranges tailored to the local community and with the brands they want, together with friendly local service”.
The direction to supermarket operators was more blunt, with a slide in a presentation at their national conference last month stating: “Don’t increase shelf prices – this will reduce gross profit dollars”.
In the presentation, obtained by The Australian, supermarket owners were told there were “lots of ways to improve margin and bank more gross profit dollars but none of them involve putting prices up”.
At a grocery and food suppliers forum on Wednesday suppliers were told if the supermarkets lifted shelf prices their gains in improving competitiveness in recent years would be put at risk, reported The Australian.
According to Metcash’s FY22 full year results, supermarket food sales over the past two years rose 13.8 per cent.
Like-for-like sales in the IGA network increased 14.6 per cent over the two years, with Metcash attributing the growth to “continued support from shoppers rediscovering the convenience of local neighbourhood shopping and the improved competitiveness of the network”.
The pandemic helped IGA make a comeback, with figures showing sales had actually declined in the two years before 2020.
A Metcash spokesman told news.com.au as a wholesaler the company accepted price increases.
“Our position has always been consistent: where suppliers put forward legitimate reasons for increases we accept them,” he said.
“However, our focus continues to be on keeping our retailers at least as competitive in the market, even after the change takes effect.”
Metcash’s advice to not increase shelf prices comes as many retailers, including the major supermarkets, hike up prices.
A fortnight ago Aldi, famous for having low grocery prices, warned price increases were inevitable.
Aldi customer interactions director Adrian Christie told the Australian Financial Review: “Some grocery prices will inevitably increase in the months ahead, but we want to reinforce our commitment to customers that we will maintain our price leadership relative to our competitors.”
The comments came as Australia’s inflation rate hit 6.1 per cent – the highest since December 1990.
The new figures from the Australian Bureau of Statistics for the June quarter showed the cost of fruit and vegetables was up a whopping 7.3 per cent from last year and 5.8 per cent from the previous quarter.
The price of meat, seafood, bread and cereal products rose 6.3 per cent, while the cost of non-alcoholic beverages rose 7.9 per cent.
The ABS said these changes reflect “a range of price pressures including supply chain disruptions and increased transport and input costs.”