Metro plans to cut store hours over minimum-wage hit
TORONTO Metro Inc.’s customers have shown a clear preference for home delivery of online goods, the grocery company’s chief executive said Wednesday, confirming plans to extend its e-commerce service into Ontario at the end of this fiscal year or in early fiscal 2019.
The news comes as industry players grapple with increased costs due to a minimum wage hike in Ontario passed in the legislature Wednesday, and stiff competition in the market thanks to expansion from Costco, and Amazon’s push into stores with its August purchase of Whole Foods.
Metro has said it expects to incur $45 million to $50 million in extra costs in 2018 from the minimum wage hike in Ontario, and in response Eric La Flèche said the company hopes to improve productivity and will scale back hours at some stores.
“Some 24-hour stores will no longer be 24-hour stores,” he said. “We have to manage the hours the best we can without reducing customer service.”
The minimum wage is set to rise to $14 an hour on Jan. 1 from its current level of $11.60, with the increase to $15 coming in 2019.
While most grocery players in Canada had been noncommittal about the prospect of delivering fresh groceries prior to Amazon’s announcement, the Whole Foods deal appeared to galvanize the Canadian players’ digital strategies.
Rival Loblaw had long said it preferred a “click and collect” ecommerce model for picking up online grocery orders outside of its stores, but last week the company announced a partnership with Instacart that will allow Toronto customers to receive home delivery of groceries starting on Dec. 6. Walmart, which began grocery delivery in some areas of Toronto last spring, is expanding its service to the adjacent suburbs next month.
“(Home) delivery economics are challenging, but we are making progress,” La Flèche told analysts on a Wednesday conference call to discuss fourth-quarter results, which saw higher earnings and a slight rise in same-store sales.
Metro, with stores in Quebec and Ontario, now offers click and collect at seven of its stores in Quebec, as well as home grocery delivery in Montreal, Gatineau and Quebec City, covering 60 per cent of the province’s population.
There is “clearly a customer preference for home delivery,” said the CEO.
In the meantime, Metro has felt the pain of Costco’s expansion. The popular warehouse club is on course to open seven stores in Canada in 2017.
“There is a big club format that has added a lot of square feet in the last 18 months,” La Flèche said.
“That has an impact on the whole market.”
Over a million square feet of grocery space was added to the market in the last year, La Flèche said.
“To say that has no impact would be lying. It creates competition, it creates a heavily promotional environment and it has an impact.”
Metro added to its market clout with the $4.5-billion friendly takeover of pharmacy chain Jean Coutu Group announced last month. The combined retailer will have $16 billion in annual revenue and a network of over 1,300 stores in Quebec, Ontario and New Brunswick.
In the fourth quarter ended Sept. 30, Metro earned $154.9 million, or 66 cents per share, compared with profit of $145 million (60 cents) in the same period a year ago. That beat analyst mean estimates by a penny.
Shares fell 52 cents to close at $41.03 on Wednesday in Toronto.