Metro stays competitive in grocery wars

Country’s third largest grocer lowers prices, reaps rewards in sales, shares

Both the full-price and discount grocery formats of Metro Inc. are holding their own despite fierce price competition with rivals from Sobeys to Wal-Mart, its chief executive said Wednesday.

Metro, the country’s third-largest grocer with more than 600 stores in Quebec and Ontario under banners including Metro and discount division Food Basics, has been able to lower prices in its fullline stores as it takes costs out of the business.

“We need to be competitive in both of our formats,” Eric La Flèche told analysts on a conference call to discuss the retailer’s robust second-quarter results. “Even in a conventional store, you have got to be at the good price or very close to it.”

Despite a performance he characterized as “excellent,” with some market share gains in both provinces, the grocery sector remains highly promotional, he said, with about half of the merchandise sold by Metro being under some sort of sale or promotion. “It has been like that for a while, and we don’t see that changing for a while,” between items in the weekly flyer, vendor promotions and loyalty programs, “all of our different programs amount to about 50 per cent of sales,” La Flèche said.

“There are always skirmishes in certain areas that can happen. I think meat pricing is quite aggressive, given the cost of the commodity these days. It’s a very competitive market … we have to stay on top of our toes.”

Metro’s profit for the period ended March 12 leapt by more than 10 per cent compared with the same period a year ago. Metro earned $124.9 million, or 51 cents per share for the quarter, compared with $111.6 million (43 cents) last year.

Sales rose to $2.88 billion from $2.71 billion and same-store sales, an important performance bellwether, rose five per cent — viewed as a positive upside surprise by many analysts.

“Metro’s strong tonnage growth appears to suggest that the company has gained market share, which we believe will be viewed positively by investors,” Peter Sklar of BMO Capital Markets said in a note to clients.

La Flèche said both store traffic and average customer spending at the checkout counter increased in the quarter.

Sales were higher thanks to food price inflation, but the company is also seeing a boost in its house branded goods across its banners.

Metro’s performance is seen as a positive sign given the ongoing rollout of Wal-Mart’s grocery supercentres across Quebec. This month, rival Sobeys slashed prices on 8,500 grocery items at its IGA stores in Quebec by five per cent to seven per cent after cutting prices on meat and produce at its Safeway stores in Western Canada last month. Unlike Loblaw and Metro, Sobeys lacks a discount banner in Quebec or Western Canada.

Eyeing Walmart and the growing popularity of discount banners such as Loblaw’s No Frills, Metro announced a restructuring of its Ontario operations in 2013, closing some outlets and converting several full-line Metro stores to Food Basics.

In the meantime, Metro is refreshing its full-line store concept and is adding stores to its ethnic food chain, Adonis, and bakery division, Première Moisson.