Tuesday, January 25, 2011

Food-cost competition trims Metro sales

Quebec and Ontario supermarket giant Metro Inc. said Tuesday that aggressive price discounting and lower drug pricing bit into first-quarter sales, but it is ready to fight new food-counter competition from Wal-Mart Canada and soon Target Corp.

CEO Eric La Fleche said heavy investment in the retail food network, a successful Metro et Moi loyalty program through Quebec to match Air Miles in Ontario, plus transportation and warehousing savings and tighter cost control will keep Metro competitive and growing.

"Ontario remains a very challenging market especially in the discount sector," La Fleche told analysts, “but intense promotional activity is continuing in both provinces, indicating more pressure on the topline in the current quarter."

But he also said with the surge in commodities worldwide, many food prices may well trend higher this year. "We’re collaborating with our suppliers to ensure cost increases will be passed on to consumers in an orderly way and not all in one go.”

Walmart is expected to start selling a full range of food products at its Quebec Supercentres, as it already does in Ontario. Target has food counters in the U.S. and is buying Zellers, which is already in the food business.

In the first quarter ended Dec. 18, Metro said, $84 million was invested in the network. with five new stores opened, eight renovations and three closings. About $250 million will be invested through fiscal 2011.

Metro, with almost 300 supermarkets and discount stores in Quebec and more than 270 in Ontario, has low debt and the cash flow to continue share buybacks and dividend increases and to finance network expansion, said La Fleche. A special team is working on long-term expansion opportunities in Ontario.

Last year Metro made a sizeable acquisition in Quebec "and we’re always looking at food-sector opportunities and we want to expand our Brunet and Drug Basics drugstore networks in Quebec and Ontario despite the prospect of lower generic prices."

"We see two years of built-in deflation in the drug business with the Ontario and Quebec generic laws and so we must lower costs, reduce our product offering and sharpen up our warehousing," he added.

Earlier Metro said first-quarter sales slipped by 0.5 per cent from a year earlier to $2.64 billion and earnings were $92 million or 88 cents a share, down 6.2 per cent from $98.1 million or 91 cents a share in the first quarter of 2009. Excluding special items, including its share of Alimentation Couche-Tard’s profit, adjusted earnings equalled 88 cents a share, up 3.7 per cent on the year.

Adjusted operating earnings (before interest, tax and depreciation) were $168.8 million or 6.4 per cent of sales versus $172.2 million or 6.5 per cent of sales. Same-stores sales were flat compared with the 2009 period.

No comments:

Post a Comment