Even as food inflation begins to cool off, Metro chief Eric La Flèche said the grocer is continuing to receive a “significant” number of cost increase requests from its vendors.
Some of those increases will hit Metro’s shelves in the coming weeks and months, La Flèche told analysts on the company’s second quarter earnings call Wednesday (April 19).
“We have good conversations with our vendors to manage it, mitigate it and control the rate of increases because we want to protect customers and protect the pricing at retail, but there are increases coming,” he said. “The root causes of worldwide food inflation are still there. And we're going to have to accept some of these increases.”
The high cost of groceries has swayed many consumers towards discount retailers and private label brands over the past several quarters.
Across Metro’s banners, La Flèche said that trend isn’t showing signs of slowing down.
“Customers are searching for value. Promotional penetration continues to increase and private label sales growth is outpacing national brands,” he said. “Discount continues to outperform conventional and we are well positioned to capitalize on this trend with our Super C stores in Quebec and Food Basics in Ontario.”
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The company is poised to grow its discount footprint with the opening of two new Super Cs this quarter and an additional two locations planned for fiscal 2023, as well as two new Food Basics stores.
“It's extremely competitive. All banners, be they conventional or discount, want their fair share and are promotionally aggressive,” La Flèche told analysts. “When discount is growing, some conventional competitors can become more aggressive, which affects the whole market… And that's why we say we're well positioned with both of our banners.”
Metro reported net earnings of $218.8 million for Q2, up 10.4% from the year-ago quarter.
Sales topped $4.55 billion, a 6.6% increase from last year. Food same-store sales were up 5.8% due to higher inflation, while online food sales increased 41%.
Food basket inflation was 9%, down slightly from the previous quarter. Pharmacy same-store sales were up 7.3% with a 5% increase in prescription drugs and a 12.2% increase in front-store sales, primarily driven by over-the-counter products, cosmetics and health and beauty.
Looking ahead, La Flèche said the grocer is seeing improvements across its supply chain. But he warned the industry isn’t back to pre-pandemic performance yet.
“There are vendor service issues at our warehouses. We are still on allocation with certain vendors in certain categories. So it’s an evolving situation. The assortment reductions or production reductions by certain vendors, as far as I know, are not that much better. They're still concentrating on their best selling items to ensure supply. So that remains. You can still see holes on some of our shelves – most of them are vendor related, sometimes it's self-inflicted for sure. Net supply chain service levels from our vendors has improved, but we're not quite where we want to be.”