Australian wholesale retailer Metcash has reported lower annual sales and earnings from its core food and grocery business.

The fall in revenue and EBITA from Metcash’s largest business was reported alongside higher company-wide sales and profits.

The company, which supplies independent grocery chains including IGA and Foodland, said EBITA from its Metcash Food & Grocery business fell 5% to A$378m (US$347m) for the year to 30 April.

Metcash said earnings dropped on the back of lower sales – which fell 2% to A$9.1bn – as well as the “deleveraging effect of deflation”, “significant” investment in marketing and higher utility and transport costs.

CEO Andrew Reitzer, who is leaving Metcash at the end of the week after 15 years with the retailer, said: “The impact of deflation has continued and we have been affected by the deregulation of trading hours in Western Australia. This together with some store closures has resulted in a small decline in our market share in Metcash Food & Grocery. We have met this challenge by focussing on a comprehensive national marketing strategy.”

Group results included a profit after tax more than doubled to A$206m (US$189.8m), as the group cycled charges booked in the prior year period.

Metcash said the bottom line was also boosted by a strong performance from its liquor unit and increased investment in new business. On an underlying basis, profit was up 6.9% at A$281m.

However EPS fell 4.4% as the benefit from investments funded through an equity placement part-way through the year was not felt until the latter part of the fiscal year, Metcash said.

Sales rose 3.8% to A$13.1bn. Reitzer said the business showed a resilient performance in the face of difficult market conditions.

“It is a challenging time for the independent retail sector with consumer confidence low and the self service supermarket chains locked in a marketing war. Most particularly, as a wholesaler, we have also had to weather the impacts of continuing price deflation. The core grocery business has performed reasonably in light of the difficult market conditions,” Reitzer said.

Ian Morrice, a previous CEO at New Zealand discounter The Warehouse Group, will succeed Reitzer as Metcash chief. He said the results were “creditable in such difficult economic conditions” and revealed he had set up plans to set out Metcash’s future priorities.

“I have initiated a strategic planning process which will be complete by the end of 2013. This process will develop our strategic priorities, growth opportunities and build on the great platform that Andrew and the team have created. A key priority will be to review the Food & Grocery operations to respond to the ongoing deflationary and competitive market conditions.”

Click here to view the full announcement on the ASX.