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Takeaways from Metro's 2017 third quarter results

CEO Eric La Flèche discusses meal kits, inflation and e-commerce

A new Ontario minimum wage could increase Metro’s labour bill by as much as $50 million in 2018, but CEO Eric La Flèche said Metro would find ways to absorb the new costs, which could mean price increases for shoppers.

“The minimum wage increase in Ontario will put pressure on the industry as a whole in 2018,” he said. “We have faced headwinds before and I’m confident that we will continue to both satisfy our customer and create long-term value for our shareholders going forward.”

La Flèche made the comments during a conference call with analysts to discuss the grocery chain’s third quarter results, which he called “satisfactory.” Sales of $4.07 billion were up 1.4% from the same quarter last year. Same-store sales were down 0.2%, though profit rose 3.7% to $183 million on the quarter. La Flèche cited ongoing, though moderating food price inflation, a competitive promotional market and poor weather for sluggish sales. Basket size was up slightly, but traffic was down overall meaning same-store sales were “essentially flat,” he said.

During the conference call, analysts were most interested in the impact of the Ontario government’s plan to raise the minimum wage next year. The increase will obviously present new pressures to the industry as a whole, he said. Metro estimates labour costs could rise $45 million to $50 million in 2018. But, La Flèche also said multiple times he was confident they’ll be able to find ways to offset the additional costs to the business as they have done with increases in the past. “Energy, for example, in Ontario has gone up significantly over the last few years and we have been able to manage and offset,” he said.

La Flèche did not comment on what the minimum wage should be, but said the short notice and speed with which the government planned to make the increases was problematic.

“It is the pace that makes it a pretty big challenge,” he said. “But we are confident that we will find offsets on our own that we can control on the cost side.” Efforts to improve productivity and introduce new technology and automation could be stepped up because those initiatives will become more cost-effective with a higher minimum wage, he said.

However he also said some of the offsets could come from an increase in food prices. “I think some of our costs of goods sold may be going up partly because of this,” he said. “I think over time if structural costs go up, it could have an inflationary impact.”

Analysts weren’t only focused on the minimum wage and La Flèche provided additional insight in a number of areas related to the Q3 performance and future plans for Metro.

On weather, deflation and promotion

La Flèche said while food deflation eased and essentially leveled off in Q3, the promotional market was actually more challenging than in Q2 which hit gross margins and poor weather, especially during the long weekends, hurt sales overall. “I’m pretty confident that with average or better weather we would have had positive ,” he said

On e-commerce

While Metro is continuing to roll out its e-commerce offering, the focus for now will remain on Quebec. “We are expanding our coverage in Quebec and by the end of this calendar year we will offer home delivery and click and collect in the major urban areas of the province, covering 60% of the population.” He did not say when they will turn their e-commerce attention to Ontario. For now, the focus is on testing, learning and adjusting the platform in Quebec.

On MissFresh

At the start of the month, Metro announced its acquisition of Montreal meal kit delivery company MissFresh. “It is a small thing, it is a lab and it is some innovation that we think holds some promise,” said La Flèche. Metro looked at a few different meal kit players before concluding Miss Fresh was the best fit for the company. “We liked the partnership model where we keep the founders interested. This is a very small business with a good young team, with good technology,” he said. An expanded meal kit offering will be an attractive proposition for consumers shopping online, he said. “We also think this fits in well with our in-store offering at the Metro banners.”


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