Metro ended its financial year Wednesday with fourth quarter sales and profits up slightly thanks to a return to inflation.
“Traffic was down a bit in the quarter, offset by an increase in the average basket,” said CEO Eric R. La Flèche, in a call with analysts Wednesday morning.
Intense competition continues to put pressure on top-line growth, he said, but after three quarters of deflation, the fourth quarter saw inflation of about 0.3%, he said. “Which we view as a positive development.”
Sales were up 10.2% to $3.23 billion, though the quarter had an extra week in it this year. Excluding that extra week, fourth quarter sales were up 1.4% and same store sales were up 0.4% compared to 2.8% in the same quarter last year.
Metro earned $154.9 million in its fourth quarter up from $145 million a year ago.
For the full year sales were $13.175 billion up 3% from $12.789 billion the year before. Excluding the extra week, sales were up 1% and same-store sales were up 0.3%.
In the analysts call, La Flèche discussed the results and touched upon some of the key issues for the grocer in 2018.
Expansion and competition
“The market is very competitive,” said La Flèche. Much of that has to do with expansion from competitors, particularly in Ontario. More than one million square feet has been added in the past year or so in that province, he said. “It creates competition, it creates a promotional environment.”
But Metro has been investing in expansion and growth as well, spending $370 million in 2017 to open 10 new stores and expand, renovate or convert 45 stores, for a total of 236,000 sq. ft.
“For fiscal ’18’ we are budgeting five new stores and 24 major renovations projects,” he said.
Last month, Metro also announced it would spend $400 million over the next six years to build two new distribution centres in Toronto—one for fresh and one for frozen.
“The new distribution centres will provide improved product assortment and selection accuracy as well as more flexibility, which will allow us to improve service to our store network and customers,” said Carmen Fortino, executive vice-president and Metro Ontario division head, at the time. “In addition, they will feature state-of-the-art technology to enhance efficiency.”
The customer has spoken and the customer wants home delivery, said La Flèche of Metro’s experiments beyond traditional bricks-and-mortar offerings.
In Quebec, Metro now offers click-and-collect in seven stores and home delivery in Greater Montreal, Quebec City and Gatineau and plans to introduce e-commerce to Ontario late in 2018 or early 2019. There has been a lot of testing, learning and adjusting, he said. “Clearly there is a customer preference for home delivery.” Metro is working to improve and expand its delivery offerings, though it is not easy, he said. “Delivery economics are a challenge, but we are making progress.”
La Flèche said the August acquisition of meal kit company MissFresh is “off to a good start.” MissFresh subscribers can now pick up their meal kits in store “and hopefully shop for their other food needs,” he said. And Metro started a pilot program to sell MissFresh meal kits in store alongside Metro’s own prepared meal offerings.
The increase in minimum wage in Ontario (which was formally approved in the Ontario Legislature Wednesday afternoon) has been a recurring theme for grocery CEOs this year and La Flèche once again discussed how Metro planned to offset the projected $45 to $50 million in increased labour costs. “We are doing everything we can to mitigate this impact by increasing productivity, using technology where possible and controlling our costs,” he said
Asked to expand on these statements, La Flèche said “there is no one magic bullet,” but that managing hours will be one of the most important responses. “Some 24-hour stores will no longer be 24-hour stores, some stores will have reduced hours,” he said. “You have to manage the hours best you can without reducing customer service.”