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11/22/2018

Jean Coutu deal starts paying off for Metro

Food and pharmacy banners benefitting from procurement synergies and private label opportunities, CEO says

Metro's acquisition of Jean Coutu Group led to fourth-quarter sales gains and has helped build a "significantly stronger platform to meet customers' every day needs," according to CEO Eric La Flèche.

The Quebec-based food retailer reported sales growth of more than 15% in its first full quarter since paying $4.5 billion for the pharmacy chain in May 2018. (Excluding Jean Coutu, Metro said sales in the quarter would have been up 2.4%.)

"The Jean Coutu integration plan is on track," and generated $6.6 million in synergies in the quarter, said La Flèche, during a conference call with analysts Wednesday morning. He said the company was actively working on procurement synergies and has combined HR, IT and finance departments to service both banners. In all, the grocer predicted synergies to reach $17 million on an annualized basis and $75 million over three years.

"We're a stronger company together... It positions us better than ever to service, especially Quebec customers, for their every day needs. If we do our job right we'll earn the right to be part of customers' lives," he said.

The pharmacies have started carrying some of Metro's private label Selection and Irresistibles products, said La Flèche. And Metro will soon carry some items from Jean Coutu's private-label brand Personnelle, "which has built a strong reputation here in Quebec," he said.

Though it's still early and Jean Coutu is only carrying a limited product assortment for now, there's "potential for efficiency and increasing private-label volume so we can get a better cost and we'll build it over time," he said. La Flèche also sees private label as an opportunity to lift sales across banners.

READ: Metro gets into the ready-to-cook game with MissFresh deal

There is also potential to sell more food at Jean Coutu, but the company would examine the opportunities on a site by site, market-by-market basis, he said. Additionally, the company will explore adding meal kits to Jean Coutu locations in urban areas. "Stay tuned," he said.

E-commerce and click and collect—which is available through seven Metro locations in the Greater Montreal Area—"remains a small portion of banner sales," said La Flèche. (Sales from Metro's online business is tabulated into same-store sales.) "It's not contributing right now, but we're confident over time as we fine tune our model and scale up that we'll get there," he said.

"It's a new business for us, it's a new model so there's a lot of learnings and processes and procedures to be efficient," he said. "When we go to Ontario we will be even better." La Flèche said it would launch e-commerce in Ontario on a smaller scale than it had in Quebec, but anticipated it would serve 60% of the Greater Toronto Area.

Metro is awaiting site plan approvals for automated fresh and frozen distribution centres in Toronto, with construction expected to start in early 2019, he said. Metro is currently renovating stores to accommodate e-grocery services with plans to launch next spring.