Title: Metro announces $200 million re-branding effort

Sub-title: Despite recession talk, CEO La Flèche sees no shift in grocery shoppers` spending patterns.

 

Ontario food shoppers are about to see a new look. Starting in September, the province’s Dominion, A&P, Leob, The Barn and Ultra Stores will be converted to Metro banners. Metro will invest close to $200 million in the initiative, which is expected to boost operational and marketing efficiencies, made possible following its 2005 acquisition of the A&P’s Canadian operations.

 

 “There will be some disruption to operations,” Eric La Flèche, Metro’s president and CEO said in response to follow up questions later in the day. “But not every store will see a major remodelling. Some of the changes will be far (more modest).”

 

Metro’s long-expected announcement came just hours prior to its recent quarterly analysts’ conference. As is mostly the case with Metro, the numbers for the most recent quarter once again all looked good. Revenues, profits and earnings per share up said La Flèche, due to: “Solid operations in Quebec, a better performance in our Ontario stores and effective cost controls.”

 

The company also announced that earnings before interest taxes depreciation and allowances during the first two quarters, as a percentage of sales, were lower than during the corresponding the year before. A more challenging environment in the Ontario market, costs associated with the company’s new information systems there and a new Food Services warehouse in Quebec, were cited as reasons.

 

However La Flèche denied that Metro was feeling pressure to lower prices in response to moves by Loblaws earlier in the year in that direction. “I know we are hearing talk about a recession, but we see no real noticeable shift in consumers spending patterns so far,” said La Flèche.

 

La Flèche also denied that Metro`s sluggish same store sales performance was due to its pricing policies. “Yes it is a competitive market,” he admitted. “But I don’t think that (it) is an issue at all. It is all a question of delivering a better store experience.”

 

In addition to moving its Ontario stores over to the Metro banner, the company is also upgrading its logo. That said La Flèche cautions against expecting too much from the changes. “Our research shows that customers give more weight to store location and to their in-store shopping experience than they do to the store brand names themselves,” said La Flèche.

 

That said, in Metro’s case there is at least some evidence that branding efforts have had an impact. The company’s private label streamlining campaign is said to be on track with expectation. The company will have 1,500 items available by year end and reaction has been strong, particularly in Ontario.

 

La Flèche also addressed rumours that Metro`s Food Basics stores were having quality problems and indicated that things were turning around. “We have a new leader there now and I believe that our stores are improving a lot, said La Flèche.

 

One key theme that was not addressed directly was Metro’s challenges in boosting sales to what is essentially a mature Canadian grocery market. During the most recent quarter, revenues increased by a meager 0.9% compared to the same quarter last year. Even when you discount the effects of slumping cigarette sales, (due to the Quebec government’s recently-imposed ban on displaying tobacco products in grocery stores) the increase was still only 1.5%.

 

In another signal that building sales is expected to remain a challenge over the short term, Metro announced that it will expand its total square footage by a modest 1.5% this year and by the same amount next year. Furthermore, the company’s latest share buyback plan, which will begin in September, has increased to six million shares from four million. (Share buybacks are often interpreted by market watchers as a signal that there are few compelling investment opportunities available within a given industry at a given moment). 

 

As for the store conversions, these will be handled gradually during the coming 15 months, starting with the Dominion outlets in Toronto. The rollout will be accompanied by a major marketing campaign, details of which will be announced at a later date. Then, during subsequent months, the A&P, Leob and other banners will follow. At the end of 2009, the company expects to have 376 conventional Metro banners operating in central Canada, including 218 on its Quebec home turf.

 

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

 

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