Metro Inc.'s chief executive says despite increasing competition in the discount grocery space, he thinks the retailer is well positioned to continue meeting demand for lower prices while also setting its conventional banners up for success.
"Clearly, there's been a little more pressure on conventional these last couple of years with this shift, but we anticipate that at the end of the conversion wave, our Metro banner will be on a good footing to grow again," Metro chief executive Eric La Flèche said on a call with analysts discussing the company's third-quarter earnings.
Though strength in Metro's discount banners continues to drive growth, the company is pleased with how its conventional stores are performing despite the pressure, said La Flèche.
The discount grocery market in Quebec is growing faster than in Ontario, he noted, as one player in the industry is undertaking "massive conversions."
He didn't name the competitor, but Loblaw has been betting big on its discount stores No Frills and Maxi, rolling out new stores and converting conventional stores to its discount brands. Earlier this year, the company said it plans to introduce more than 40 new discount stores across the country, after opening more than 30 last year.
"We have added square footage with new ones and a few conversions ourselves," said La Flèche.
"The discount conversions are going to end pretty soon, and then we'll see where the market settles."
Pressure is mounting on conventional stores to offer more as consumers flock to discount, and as some of the discount stores are brand-new or fully renovated, said La Flèche.
"They have to provide something different. They have more assortment, more services. The experience for the customer has to be elevated, and I think that's what the Metro banner is trying to do," he said.
"Market by market, store by store ... we are investing in our conventional stores, we're investing in our programs, we're investing in our loyalty programs."
Metro is expanding its Moi Rewards program across its Ontario stores later this year, after launching last year and garnering more than 2.5 million active members in Quebec.
Metro reported lower profits in the third quarter while sales rose 3.5 per cent.
The Montreal-based grocery and drugstore retailer earned $296.2 million in its third quarter, down from $346.7 million in the same quarter last year.
Sales in the quarter amounted to $6.65 billion, up from $6.43 billion in the same quarter last year.
The increase in sales came as food same-store sales rose 2.4 per cent. Pharmacy same-store sales gained 5.2 per cent, with a 6.3 per cent increase in prescription drugs and a three per cent increase in front-store sales.
Asked whether the boycott of Loblaw-owned stores during the quarter benefitted Metro, La Flèche said, "No. It's hard to pinpoint to that single event."
Metro warned earlier this year that it would face significant headwinds in its 2024 financial year related to its transition to new distribution centres in Terrebonne, Que., and Toronto.
The new automated fresh and frozen distribution centre in Terrebonne is now fully operational, La Flèche said, and productivity levels are ramping up in line with the company's plans.
Meanwhile, the transfer to the last phase of the automated fresh distribution centre in Toronto has begun, he said.
"By the end of September, it'll be done, and so far, it's going well," he said.
"It's something we have to get through, but the team is doing some heavy lifting all year, and everybody's looking forward to getting this behind us by the end of September.
The company said these transitions mean 2024 will see some temporary duplication of costs as well as some inefficiencies, but added the investments position Metro well for long-term profitable growth.
Metro's profit amounted to $1.31 per diluted share for the quarter ended July 6, down from $1.49 per diluted share a year earlier.
On an adjusted basis, Metro says it earned $1.35 per diluted share in its latest quarter, unchanged from its adjusted result a year earlier.
This report by The Canadian Press was first published Aug. 14, 2024.
Companies in this story: (TSX:MRU)
Rosa Saba, The Canadian Press
