Conventional grocery stores under pressure as Canadians shop discount banners: Metro chief
Discount grocery stores are continuing to outperform their conventional counterparts.
That gap—which has been widening for the past couple of years amid high inflation—is putting pressure on the traditional store model, Metro Inc.’s CEO said.
“[Conventional stores] have to provide something different… The experience for the customer has to be elevated,” Eric La Flèche told analysts on Metro’s third quarter earnings call Wednesday (August 14).
“That's what the Metro banner is trying to do, market by market, store by store. We are investing in our conventional stores, we're investing in our loyalty programs. There's more for the consumer in our conventional stores, and it's a differentiated offer versus discount. That's the way it needs to be.”
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The company operates food and pharmacy retail stores in Ontario and Quebec, including Metro and Jean Coutu. Its discount banners include Super C in Quebec and Food Basics in Ontario.
“In markets where there are no conversions—so, status quo—our discount stores are growing faster than our conventional stores,” La Flèche said. “That's why we like to have both banners, and we go to market with both banners.”
Metro reported higher food same-store sales for its third quarter, primarily driven by discount, La Flèche said.
“That said, we're pleased with our conventional store performance on a relative basis. Conventional is under pressure in [Quebec and Ontario], no question about that,” he said. “When we combine discount and conventional, we're seeing some market share and tonnage gains.”
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So far this year, the company has opened six Super C stores, including two conversions.
François Thibault, EVP, chief financial officer and treasurer, said the company also carried out major expansions and renovations to seven locations and relocated one store for a net increase of 237,000 square feet.
In the fourth quarter, Metro plans to open a Food Basics store in Ottawa, a Super C in Montreal and a Metro in Ottawa.
La Flèche said the discount market is growing faster in Quebec than it is in Ontario.
“The discount market in Quebec is growing, given the square footage additions on the discount side, massive conversions by one player,” La Flèche said.
“It's a reality. The discount conversions are going to end pretty soon, and then we'll see where the market settles… We anticipate that at the end of the conversion wave, our Metro banner will be on a good footing to grow again, and we're confident that with our Super C banner, we will capture the growth on the discount side.”
Metro reported net earnings of $296.2 million for its latest quarter, down 14.6% year-over-year.
Sales topped $6.65 billion, up 3.5%. Pharmacy same-store sales increased by 5.2%, and online sales grew by 35% since the third quarter of last year.
Metro warned of “significant headwinds” in fiscal 2024 as it gets two automated distribution centres up and running.
The grocer’s Terrebonne, Que. facility is now fully operational. Metro’s automated fresh DC in Toronto is in its final phase and set to be completed by the end of September.
“With automation, we will save labour,” La Flèche said. “We're not cutting jobs, necessarily—we're adding capacity. We're doing more volume, more throughput through our DCs with basically the same labour force. So our cost per case, from a labour point of view, will come down. That's offset by higher amortization, higher investment. We're confident we will meet our return target.”
