Price-conscious Canadians drive sales at Metro discount stores, outpacing conventional grocery

An employee returns shopping carts to a Oakville Metro grocery store. Sales at Metro discount names are outpacing sales at the main chain. Photo by Peter J. Thompson /Financial Post

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Discount-store sales, along with pharmacy retail, are driving growth for Metro Inc. faster than its conventional stores as consumers continue to search for value amid rising costs.

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The company, whose food store banners include Metro, Metro Plus, Super C and Food Basics, reported $5.11 billion in sales for the fourth quarter, a 3.4 per cent increase compared to the prior year, according to its latest earnings results released on Nov. 19.

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Chief executive Eric La Flèche told analysts that both basket size and foot traffic were up for the retailer’s discount side, while a rise in average basket size at Metro stores was partly offset by a slight decrease in transactions.

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“Discount continues to drive same-store sales faster than Metro, with the gap between them remaining consistent with the prior quarter,” La Flèche said during Wednesday’s earnings call.

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The CEO said promotional penetration remains at elevated levels and consistent with previous quarters, and private-label sales continue to outperform national brands.

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“The competitive environment remains intense but rational, and our market share was flat for the quarter,” he added.

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For the quarter ended Sept. 27, Metro reported profits of $217 million, down 1.3 per cent from the previous year. On an adjusted basis, fourth quarter profits were $246 million, up 8.6 per cent.

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This brought fully diluted net earnings to $1 per share, up two per cent, and adjusted fully diluted net earnings to $1.13 per share, up 10.8 per cent.

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The grocery retailer said a temporary shutdown of a frozen-food distribution centre in Toronto negatively affected its net earnings by $22.5 million (or $30.6 million before taxes), due to inventory write-downs and other direct costs.

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“After almost two months of shutdown, I am pleased to report that we resumed operations last week at our frozen distribution centre in Toronto and expect to be essentially back to normal by the end of December,” said La Flèche. Operations at the centre were stopped on Sept. 12.

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The grocer’s same-store food sales were up 1.6 per cent. Pharmacy same-store sales were up 4.8 per cent, with a 5.5 per cent increase in prescription drugs and a 2.9 per cent increase in front-store sales, primarily of over-the-counter, cosmetics and health and beauty products. Its drugstores fall under the Jean Coutu, Brunet, Metro Pharmacy and Food Basics Pharmacy banners.

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Online sales grew by 19.8 per cent in the quarter, which the company said was driven by the ramp up of “click and collect” and the launch of home delivery at both Super C and Food Basics, as well as third party marketplaces.

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Royal Bank of Canada analyst Irene Nattel said in a note that Metro’s and Loblaw’s previously reported results reinforce her investment thesis on the food retail segment, as cash-strapped consumers moderate spending on food away from home and focus on value in everyday household purchases.

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“However, against this backdrop of heightened consumer sensitivity to pricing and trade-down behaviour, broadly defined, and both Loblaw and Metro (stepping) up in discount store openings, Empire’s overweight exposure to full-service segment remains a relative disadvantage,” Nattel said. Empire Co. Ltd. is expected to release its earnings results on Dec. 11.

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