Embattled grocery wholesaler Metcash says it is well prepared for a battle with German discounter Aldi in its heartland states.
Metcash made a $384 million loss in 2014/15 and has been under pressure as the 2,000-plus supermarkets it supplies - IGA, Foodland, and Foodworks - face intense competition from Woolworths, Coles and Aldi.
Chief executive Ian Morrice has told investors the independents are ready for Aldi's expansion into South Australia and Western Australia.
"We have our strongest retailers in those states," Mr Morrice told reporters.
"They have been paying very close attention to pricing for the past 12 months.
"They are highly competitive and have also been increasing their fresh food offer."
He said Foodland and IGA supermarkets in SA and WA were on the front foot, and he dismissed analyst and market forecasts that Aldi's expansion will significantly hurt Metcash.
The company is the most shorted stock on the Australian share market in 2015, meaning it has the most investors backing its share price to fall.
Mr Morrice said many were assuming what has happened in NSW will happen in WA and SA.
"The independent retail network is a far stronger, more competitive and well positioned retail force than in NSW," he said.
"That is where I think the market is not giving full credit to the quality of the retailers in those states."
He said Metcash has been learning from the most successful independents that are supplied by Metcash.
The most successful stores tailored products to their local community, including providing halal meat and other specialised products.
It was something the bigger chains and Aldi do not have the flexibility to do, Mr Morrice said.
"Our plan is to accelerate learning from those highly successful independents and translate them into more stores as possible," he said.
Metcash has slashed prices across 900 stores and has extensively expanded its fresh produce range since September last year.
A key part of Metcash's plan is known as Project Diamond, launched in 2014 with a focus on store refurbishments, fresh food, lower prices and a restructure of private label brands including Black & Gold.
The company said its efforts were paying off, with Black & Gold sales up seven per cent.
Metcash shares dropped three cents, or 2.8 per cent, to $1.05.
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