Will Metcash Exist in Four Years’ Time?

What is Metcash Ltd?

Metcash Ltd [ASX:MTS] operates a wholesale distribution business specialising in grocery, fresh produce, liquor hardware and other fast moving consumer goods (FMCG). The company operates brands such as IGA Supermarkets, The Bottle-O and Mitre 10.

Why Is the Metcash Share Price Important?

The company has a current market capitalisation of $2 billion. In the last year, the company’s stock price is up almost 100%. The problem is that they’re down around 45% from their high of just five years ago.

What’s Next for the Metcash Stock Price?

What comes next for Metcash considering that, at their recent AGM, CEO Ian Morrice said: ‘Highly competitive conditions remain in all our markets with additional impact from increased competition in Western and South Australia.’ He went on to say: ‘Based on all these things together makes for a very challenging year ahead.

Competition in the supermarket segment isn’t about to slow down. Aldi Australia anticipates their sales to grow almost 90%, to $15 billion, within four years. This will also coincide with market penetration of more than 54.9% nationally. In terms of market share, it’s anticipated Aldi will fly past Metcash this year. And they might even kill off IGA altogether.

This isn’t even taking into account the ever persistent rumours that European supermarket giant Lidl may still hit Aussie shores. European raiders are taking over the supermarket industry and they’re dominating the Aussie incumbents. Will Metcash survive this onslaught? In short, yes they will. But in our view, they will be a shell of their current existence.

And all this comes before we even consider the threat of Amazon — and Amazon Grocery — that could sweep all competition aside with ease. The supermarket game is a tough one, and increasing competition is a massive threat to future revenues. Food & Grocery makes up over 68% of Metcash’s income and, in the coming years, we see their revenues eroding and having a negative impact on the stock.

With the share price rise over the last year, now might be a good time to consider an exit from Metcash. The environment for the food and grocery industry is only going to get more competitive, and margins will come under increasing pressure. If the likes of Lidl and Amazon step into the market, it could spell the end for a brand like IGA, and it could indicate tough times ahead for Metcash.


Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

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