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Metro: North America's best grocer? Maybe

Metro is simply a better operator than its rivals, says investment site

Who is North America’s best grocery chain? American analysts tend to point to Kroger, citing the U.S. supermarket’s excellent stock performance and growth.

But there’s a legitimate case that North America’s best grocer, among publicly traded companies that analysts can track, is not located south of the border.

Who is it?

Metro, the Quebec-based chain, may even be the best performing grocery chain in the world.

Such an assertion will come as a surprise to many. After all, it was a little more than two years ago that Metro seemed to be falling behind its major rivals, Sobeys and Loblaw.

If you’ll recall, Loblaw had audaciously bought Shoppers Drug Mart and Sobeys scooped up Canada Safeway. Metro, experts extolled, needed to make a big move in order to compete with the far-superior buying power of Loblaw and Sobeys, and to fend off up-and-coming competitors, Walmart and Costco.

But Metro has never been one to rush into anything, and it’s patience and diligent attention to its core business seems to be paying off with strong results.

That Metro is the most awesome grocer going gets some serious backup in an article, “Uncovered Metro challenging Kroger for title of North America’s best grocer”, on the respected U.S. investment website Seeking Alpha.

Metro, the author of the article points out, rivals Kroger or beats it in areas such as same-store sales growth, earnings per share growth and five-and 10-year share returns. The company also gets high marks for spending shareholder capital well, buying back stock regularly and not issuing shares to fund acquisitions.

But Metro’s secret sauce can be summed up in one word: discipline, a trait that has proven handy in its battle against Sobeys and Loblaw.

As the article points out, Metro’s leaders do not wield the buying power of Loblaw or Sobeys. “But what they do better is something far more important than scale: they are better operators. Not marginally better operators but significantly better,” it says.

Is there proof for such a claim? Yes, indeed. Metro’s gross margin (19.7%) trails that of Loblaw and Sobeys (23.3% and 24.9%). But its expenditures as a per cent of sales are notably lower as well: 12.7% for Metro compared to around the 20% mark for Loblaw and Sobeys.

The result is Metro’s operating margin is an eye-popping 7%. Loblaw’s margin is 4.8% and Sobeys 3.1%. Even Kroger can only muster 3%.

Metro’s real equivalent for low-cost operations, says Seeking Alpha, is Costco.

But discipline is only part of the equation for Metro. It’s been lucky, or smart, depending in your point of view.

For instance, losing Safeway to Sobeys has so far turned out a happy turn of events, as Sobeys is now struggling to integrate Canada Safeway into its operations.

Metro’s acquisition of A&P a decade ago is also now looking like a savvy decision. Back then, food retailers were building big stores in the suburbs. A&P stores were small and in urban locations. “How fortuitous!,” notes Seeking Alpha. “Metro now has the most convenient locations in Canada and is able to charge a slightly higher price at a time when more and more consumers are placing increased value on convenience.”

Even the decision to sell some of its convenience stores to Couche-Tard back in the 1980s is paying dividends for Metro. The 5.7% stake in Couche-Tard that Metro got in return is now worth a tidy $2 billion.

Not bad for Canada’s third largest grocer. Or, to some, the best performing grocer in North America.

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