Metro talks supply chain investment, discount growth

Metro’s new automated distribution centre (DC) near Montreal and automated fresh facility in Toronto – now in its final phase – will have a temporary negative effect on the grocer’s bottom line in fiscal 2024 but will pay off in the long-term, says president and CEO Eric La Flèche.

The new DC in Terrebonne, north of Montreal, which began operations last month, “represents the future of Metro’s fresh and frozen product distribution in Quebec,” La Flèche told analysts during the company’s fourth quarter earnings call Wednesday (Nov. 15). “It will strengthen our market position, generate new opportunities for our company and our employees and enable us to remain competitive while pursuing our growth.”

The transition to the 550,000 square-foot Terrebonne DC will be completed over several months, with operations having started last month for the frozen section. Fish and fresh produce will follow by early next year. 

However, operations in Metro’s older fresh and frozen DCs in Quebec City and Montreal continue, resulting in a temporary duplication in warehousing and transportation costs and learning curve costs. Meanwhile, Metro’s fresh Phase 2 facility in Toronto is set to begin operations next summer. 

“There's a lot of moving pieces and a lot of work, he says. “We're confident that it's going to go well but it's going to cost money to do that, especially in the first year.”

La Fleche is confident the estimated $1 billion that Metro has invested on supply chain modernizations in Ontario and Quebec in the last five years will improve service to stores and in-stock positions and help with same-store sales and market share.

For fiscal 2024, Metro is planning eight new discount stores including two conversions, one new Metro store and more than 25 major store renovations, said François Thibault, executive vice-president and chief financial officer.

La Flèche said Metro exceeded sales of $20 billion and net earnings of $1 billion for the first time in its history in fiscal 2023. Sales momentum remains strong, fueled by the retailer’s discount banners and pharmacy. 

For the quarter, food same-store sales were up 6.8% driven by the continuing shift to discount. 

La Flèche said Metro is pleased with discount store growth “but on a relative market share basis, the performance is not the same as it was a quarter or two ago,” as Loblaw continues to convert Provigo stores into Maxi discount outlets in Quebec. 

“It's a very competitive environment. As more discount square footage is being added to the market, it's having an impact for sure, but we're well positioned to continue to grow in that market.” 

In Ontario, La Flèche added that the collective agreement reached with employees in 27 Metro stores in the GTA who were on strike for 5 and 1/2 weeks last summer provides significant wage increases and pension and benefits improvements for employees. “As an offset we were able to improve scheduling flexibility, which will lead to increased productivity.” 

Membership in the Moi loyalty program, which launched in May in Quebec, now tops more than 2.4 million, with most members shopping in at least two of its banners (Metro, Super C, Première Moisson and Jean Coutu). 

“Program performance continues to improve week over week with healthy growth in swipe rates and loyalty sales penetration,” he said. “We see many opportunities to grow customer engagement with more personalized offers and communications to our customers based on their shopping habits across our banners.”

La Flèche said online food sales were up 116% versus last year, beating total market food e-commerce sales, which were essentially flat. “Our growth is fueled by third party partnerships and by expanding click and collect toward discount stores.”

While food inflation is declining year-over-year, “we will cycle high inflation numbers over the next three quarters,” he added. “We are still receiving price increase requests from the big CPG companies which our teams will negotiate as much as possible, so we expect food inflation to moderate going forward.”