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Recession habits help boost Metro profit Add to ...

RETAILING REPORTER

Metro Inc. is cashing in on the shifting habits of recession-ravaged consumers as they switch to cheaper private label groceries, discount supermarkets and more prepared foods rather than restaurant outings.

The changing purchasing trends, along with a good dose of inflation, have helped the country's third-largest grocer generate healthy profit gains in tough times. Yesterday, Metro said its third-quarter profit soared 22.5 per cent.

"Yes, a recession can be of some benefit to the grocery industry, and not just to us," Metro chief executive officer Eric La Fleche said in an interview. "People have a tendency to eat more at home and, as grocers, that's what we cater to ... In a recession, some people become even more price conscious, and within the grocery channel we have conventional and discount stores. In recessionary times, when people are even more budget conscious, discount does well."

Higher prices have also helped Metro and other grocers deliver improved results, although Mr. La Fleche warned that inflation is already starting to moderate and will continue to do so - although not disappear - in the coming months.

And while leading grocer Loblaw Cos. Ltd. has cautioned that its bottom line could be "significantly challenged" for the rest of the year, Metro is bullish about its prospects. "We're pretty confident for the remainder of the year," Mr. La Fleche said.

But Loblaw executives, in the midst of a big restructuring, have tended to underpromise and overdeliver - and may still continue to benefit from belt-tightening consumers, said analyst David Hartley at BMO Nesbitt Burns. Loblaw has strong private labels, including the iconic President's Choice, and even more discount stores than Metro, he said.

At Metro, sales of private labels are rising faster than overall sales, Mr. La Fleche said. Metro recently rolled out new house brands, which draw consumers with prices that are up to 20 per cent less expensive than national brands. Private labels generate gross profit margins that are as much as 20 per cent higher than those of national brands.

Metro's private label same-store sales jumped as much as twice the 4.2-per-cent rise in overall same-store sales in the third quarter, he said.

And prepared foods, such as barbecued chicken and takeout pizza, are also faring well in the recession, he said. However, Metro scaled back on some of its pricier prepared foods because their sales weren't as strong, he added. And sales of cut fruits, which can cost one-third more than their regular counterparts, have weakened, he said.

Still, Metro is benefiting as more consumers head to discount supermarkets rather than conventional ones. The company has focused on improving its no-frills Food Basics outlets; for instance, it has dropped many of its non-food items - clothing and its "dollar aisle" - because they weren't performing well, he said.

The grocer has enjoyed a stronger business in Quebec than in its other key market of Ontario, whose automobile and manufacturing sectors have been hard hit, he said. As well, it has had stiffer competition from discount giant Wal-Mart Canada Corp. in that province.

And as Metro profits from consumers eating out less, it feels the pinch in another way. Its food service division, which supplies restaurants, has suffered during the downturn, reflecting the soft business at many eateries. Those sales make up a small part of Metro's overall revenue.

In its third quarter, Metro's profit rose to $112.6-million or $1.01 a share from $91.9-million or 81 cents a year earlier. Sales grew to $3.5-billion from $3.4-billion.

METRO (MRU.A-T)

Close $35.20, down $1.10

 

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