Title: Metro absorbing some supplier price hikes in hot Ontario market

Sub-title: Food inflation costs are running at close to 2% in Canada. But unlike in Quebec, in Ontario, Metro is having a hard time passing them on to consumers


In a sign of just how tough Ontario’s grocery markets has become, Metro has been absorbing recent price increases on numerous items and has not been passing them on to customers. “Competition in Ontario is heating up. With all this activity there is very little inflation there,” said Metro CEO Pierre Lessard in a conference call with analysts earlier this month.


Eric Lafleche, the company’s COO agreed. “Food industry inflation is running at just under 2% on a national basis,” said Lafleche. “We have received some cost increases from suppliers that we have been able to pass along in Quebec. But in Ontario it has been hard.”


Metro executives also confirmed that the company’s private label initiatives are moving steadily forward. Metro’s high-end “Irresistibles” brand, which is already on store shelves in Quebec, will receive a major roll out in Ontario this fall. And the national brands “Selection” label, which is expected to consolidate several existing brands including Super C and Merit Selection as well as several others, will be rolled out, with a completely new redesign, gradually over the next two years.    


Metro also indicated that the exact amount of its capital investment program for 2008 remains uncertain, though it will likely approach $300 million spent during fiscal 2007. What will change is that next year a far greater proportion of the dollars will be directed towards the chains’ traditional stores as opposed to its discount banners. 


Metro executives also confirmed that changes to Ontario’s drug laws, which restrict the items that can be sold in pharmacies there, have hit both the top and bottom line numbers at its MacMahon subsidiary. However the new legislation will not affect the company’s criteria for determining in what cases it will incorporate the pharmaceutical outlets into certain grocery stores.


That said, the main concern remains the Ontario market. While the supplier price increases that Metro has absorbed there may seem small, over the long term, their significance could be important.


In the hyper-competitive grocery industry, net after-tax earnings of the major chains often work out to just one or two percentage points of gross sales. That means a movement of just a few basis points in gross profit can make a big difference. The question is how long the cut-throat Ontario price competition will continue and whether it will spread to other markets.


Peter Diekmeyer (peter@peterdiekmeyer.com) is Canadian Grocer’s Quebec correspondent.




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