Ontario’s third-largest grocery chain will accelerate its study of automation as it looks to cut costs to offset the provincial government’s plan to raise the minimum wage next year, the CEO of Metro said Tuesday.
Eric La Flèche said the industry is under the gun because there is little time to adjust to cost increases, especially when intensifying competition is straining margins.
Metro estimates an increase in the Ontario minimum wage to $14 per hour from the current rate of $11.40 will cost it about $45 million to $50 million on an annualized basis in 2018. The impact excludes any pressure to subsequently increase other salaries.
“It’s the pace that makes it a pretty big challenge, but we’re confident that we’ll find some offsets on our own,” La Flèche said during a conference call about its third-quarter results.
The chain said it hadn’t calculated the full impact when the minimum wage rises to $15 an hour in January 2019.
The higher labour costs would account for about 8% of the $586 million in net earnings last year and more than a third of the $127 million paid out in dividends.
It’s just the latest cost pressure facing business after enduring several years of increased energy charges.
“As a team we will strive to mitigate this impact as much as we possibly can through productivity and cost reduction initiatives, but the size and pace of these increases pose a significant challenge,” La Flèche told analysts.
The Montreal-based chain said it would “spare no effort” to manage the labour costs, but declined to specify whether the changes will have any impact on the number of employees. It has piloted the use of electronic tags on stores shelves and has considered automating its distribution centres.
La Flèche’s comments follow similar warnings by other retailers and a coalition representing a broad range of business groups.
Rival Loblaw Companies, which owns Shoppers Drug Mart and grocery chains including Loblaws and No Frills, has said it was mobilizing all its resources to offset the $190-million hit next year from higher minimum wages in Ontario and Alberta.
Discount retailer Dollarama said it wouldn’t rule out raising prices if labour costs continued to climb.
An economic analysis commissioned by the Keep Ontario Working Coalition found that 185,000 jobs could be at risk as Ontario businesses stand to take a $23-billion hit within two years of the implementation of Bill 148.
The coalition, which includes groups such as the Ontario Chamber of Commerce and the Retail Council of Canada, said the changes proposed in the bill would force employers to find creative ways to cut costs, such as hiring less and increasing automation.
The Canadian Centre for Policy Alternatives, a national think tank, said research suggested the dire predictions were unlikely to pan out.
David Macdonald, the centre’s senior economist, has said there was little impact on employment from past minimum wage hikes and that forecasts failed to account for increased employee spending. The centre has said raising the minimum wage to $15 is only a start to addressing the 19% cut in income between 2000 and 2015 among the bottom half of Ontario families raising children.
Metro’s net income for the 16 weeks ended July 1 rose 3.7% to $183 million.
Overall sales edged up 1.4% to $4.07 billion but same-store sales were down 0.2% as poor weather caused store traffic to decrease.
Meanwhile, the company said it planned to expand its e-commerce offering to Ontario eventually, but wouldn’t say how soon that may come. By year-end, it plans to offer home delivery and store collection of online purchases in major urban areas of Quebec covering 60% of the population.
Metro also said it was looking to expand its Adonis chain of Mediterranean-inspired food stores in both provinces next year after buying out its minority partners.