Why IGA supermarkets are in deep trouble
The future of IGA has become bleak as the government cracks down on the wholesaler behind the struggling supermarket.
Almost all IGAs are reliant on grocery wholesaler Metcash, but a decision by Metcash to not sign the Grocery Code of Conduct has landed them in trouble.
A few years ago, Coles and Woolworths received backlash for the way the supermarket giants were treating their suppliers. To prevent the same issue happening again, the Grocery Code of Conduct was created.
The Grocery Code is a unique law that parties must agree to be part of, but once they are, it applies like any other law.
The Code has made a positive difference in the supermarket industry, with suppliers for Aldi, Coles and Woolworths all being much happier.
However, Metcash has opted out of the Grocery Code and now the government is targeting them.
A review has been commissioned on how the Grocery Code is working and in the draft report, Metcash has been singled out for its behaviour towards farmers and food manufacturers.
“The review received complaints from suppliers concerning the conduct of Metcash, including issues relating to unilateral demands, forensic accounting practices to offsetting amounts owed without the supplier’s consent, failure to comply with promotional terms, and requiring payments above reasonable costs to conduct study tours,” the draft report says.
“The review identified ongoing issues between the wholesaler and its suppliers. Metcash should become a signatory to the Grocery Code.”
The report also highlights what has been responsible for IGA’s recent downfall.
“With increased price competition, independent retailers and Metcash have faced a steady decline in their turnover over the past five years. Questions have also been raised about whether its traditional wholesale model remains suitable for adapting to changes in consumer habits,” the review says.
If Metcash is forced to sign up to the Code, an already struggling IGA may be forced to increase prices even more – accelerating the decline of the company.
Economist Jason Murphy asked Metcash spokesman Steve Ashe if Metcash and IGA would survive if the wholesaler was forced to sign up to the Code.
“Our model is based around partnering and working closely with our suppliers. We believe we already comply with the parts of the Code that relate to us, and would consider signing up to components of the code that do not lead to an adverse impact on the competitiveness of our independent retailers,” he said.
However, Metcash has been left with little choice as the review has recommended the government to set up a mandatory code if Metcash does not “voluntarily” sign up to the existing one.
“In the event Metcash continues to remain outside of the Grocery Code, the Review recommends that the Government introduce a separate mandatory code of conduct containing the same substantive terms as the current Code (together with any amendments adopted as a consequence of Government accepting recommendations in this Report) with targeted application to Metcash,” the review says.
With the increasing popularity of Aldi, the expansion of Costco and the arrival soon of Kaufland, IGA will need to quickly change things up to survive.
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