November 19, 2014
Metro surges in strong promotional environment
Private label brands struggling to gain traction, amidst marketing incentives by major brands
Metro Inc. reported strong sales and profits during its fourth quarter amidst competition from Walmart Supercenters and high food inflation. However heavy marketing by major suppliers is putting pressure on store brands said Eric La Fleche, the company’s CEO in a conference call with analysts earlier this morning.
“A very promotional environment with good incentives makes it hard for private labels to grow,” said La Fleche in response to questions about Metro’s recent introduction of several Selection brand SKUs for which he acknowledged that “there could be room to grow.”
Metro’s sales rose by 3.9 percent during the quarter to $2.71 billion despite a strong push by Walmart, which is rolling out 35 Supercenters in the Quebec grocer’s home province. However according to La Fleche Metro’s Super C discount stores are holding out well in head-to-head competition. “The impact is greater when there is a new (Walmart) center built in a town, because the converted stores were mostly already selling grocery items.”
A struggle to pass on soaring meat prices
Much of Metro’s sales strength was driven by internal food inflation which ran at 2.5% during the quarter. The increases were primarily driven by the fresh category, notably a 10% increase in meat prices, which Metro is having trouble getting buyers to absorb. “Customers have to adjust to a new cost reality. When prices spike, they trade down or move on to something else,” said La Fleche. “Over time we will pass these increases on.”
Metro also benefitted from gains in average transaction size and store traffic, the latter driven by lower gasoline prices, which La Fleche acknowledges are also having a positive impact on operating costs. That’s particularly true in Quebec, where Metro’s recent shuttering of its Quebec City distribution produce and milk center has increased transportation mileage.
Food Basics conversions complete
In Ontario Metro’s recent move of six outlets over to the Food Basics concept, including two acquired last year, marks the completion of the program. The company’s Adonis stores also performed well during the quarter, particularly the brand’s new downtown Montreal outlet, one of two new stores which were recently opened.
La Fleche confirmed that two new Adonis stores would be opened during the company’s coming fiscal (not calendar) year. Metro will also accelerate the opening of more Premiere Moisson stores, following completion of the acquisition of the Quebec retailer and fresh goods producer. In all Metro is expected to invest between $275 million and $300 million in new capital expenditures during the coming year. La Fleche reacted sceptically to credit card companies’ plans to cut the fees they charge merchants by 10% calling the reduction “too little.”
Le Fleche commented on this morning’s announcement that Real Raymond, the former National Bank CEO and Metro board of directors member, will take over as chairman, following the company’s January 27, 2015 annual general meeting. He will replace Pierre Lessard, a former long-time Metro CEO, who has been with the company almost a quarter century. La Fleche commended Lessard’s success and said that he looks forward to working with Raymond in his new role.
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Peter Diekmeyer Communications Inc.