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Industry NewsMetro feels effects of deflation on Q3 earnings

Metro feels effects of deflation on Q3 earnings


Thursday, August 17, 2017

Metro Inc. says it is battling rising competition and upcoming minimum wage increases with an e-commerce push that includes extending online shopping to customers throughout Quebec and getting into the meal kits business.

The news came after ongoing food price deflation dampened third-quarter earnings at Metro. The company also said a minimum wage hike in Ontario would further squeeze grocers in a highly competitive industry, according to a Financial Post report.

Given the industry headwinds that are keeping margins slim, CEO Eric La Flèche called the third quarter results “satisfactory,” with a slight decline in customer traffic offset by a spending uptick on the average grocery basket. “Pricing is very intense and very promotional,” he said during an analysts’ call.

Metro noted that an announced minimum wage increase for Ontario would have an impact of $45 million to $50 million in 2018. Competitor Loblaws has said that the proposed wage hikes will increase its labour costs by $190 million next year.

La Flèche stopped short of saying the wage increase would lead to increased prices for consumers, saying that over time, structural cost increases can lead to inflation. La Flèche said the company would implement cost controls to mitigate the effect of minimum wage hikes in Ontario.

Metro reported an eight per cent increase in net earnings to $183 million for the third quarter ended July 1, 2017, compared to $176.5 million a year ago. Sales rose 1.4 per cent to $4.07 billion in the period, but same-store sales fell 0.2 per cent as the price of Metro’s average basket of food fell one per cent.

Metro is expanding its e-commerce program, which offers home delivery or in-store pickup, to a number of new urban areas in Quebec to reach about 60 per cent of the province’s population in total, La Flèche said. The company also plans to introduce online shopping in Ontario sometime in the future.

Eyeing the burgeoning meal kit business exemplified by companies such as Blue Apron, Metro recently acquired a majority stake in Montreal-based MissFresh Inc., which delivers recipes and portioned chilled ingredients to the homes of customers who subscribe to the service, according to the news report. Though the investment will enhance Metro’s online offering, La Flèche said the meal kits could also be offered for sale in Metro’s stores.

“We keep abreast of all trends,” La Flèche said. “It’s a small investment, with good promises of future development and we will see where it goes.” 

Read the earnings call transcript.

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