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Metro profit climbs despite competition, cautious spenders

Shoppers outside Metro supermarket on Front St. East near Church St. in downtown Toronto.

Fred Lum/Fred Lum/The Globe and Mail

Facing heated competition, grocery chain Metro Inc. hasn't been able to enjoy the full affects of cost inflation because of pressures to cut prices and draw cautious customers.

Still, the country's third largest supermarket retailer was able to eke out third-quarter profit gains, partly with the help of a stronger Canadian dollar which eased the cost of purchasing its products in U.S. currency, chief executive officer Eric La Fleche told an analysts' conference call on Wednesday.

Among other challenges, Metro is grappling with the rapid expansion of Wal-Mart Canada Corp.'s discount grocery aisles in its new supercentres, which is pinching Metro's and other food retailers' businesses.

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Wal-Mart is stealing some business from all players, Mr. La Flache said. "There has been some impact on us but so far it's been modest," he said of three Wal-Mart supercentres that opened recently in Metro's home base of Quebec.

Metro reported on Wednesday that its third-quarter profit increased 4.1 per cent on a slight uptick in sales that was softened by more promotions.

The Montreal-based company reported profits of $124.9-million, or $1.21 per share, an increase from $120-million or $1.12 a year ago.

The results came in a penny below expectations, according to a Thomson Reuters poll.

Sales moved ahead 0.4 per cent to $3.58-billion from $3.56-billion.

Mr. La Fleche said that bargain-hungry shoppers were making fewer trips to the supermarket but spending a bit more when they did venture into the stores. He said consumers were finding savings partly by purchasing more private labels, which cost less and generate higher margins for the grocer.

Penny-pinching consumers are reacting to higher fuel prices and the generally soft state of the economy, a phenomenon that is seen throughout the industry, he said. While Metro's sales -- in dollars -- rose, its volume of sales just stayed constant from a year earlier.

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During the quarter, Metro won its eight-year legal battle with shareholding store owners after the owners failed to appeal a Quebec Superior Court ruling.

In its May 17 ruling, the court sided with Metro in its dispute with the Regroupement des Marchands Actionnaires Inc. The store owners group had wanted to be able to convert their one-vote class A shares back into multiple-voting class B shares.

Meanwhile, Metro and other grocery stores are struggling with whether to pass on the increasing cost of food to customers amid tough competition from companies like Wal-Mart, which is expanding its grocery offerings.

Metro has said prices of some food items such as milk, bread, meat and some produce have started to increase, but promotional prices have remain unchanged.

Meanwhile, Metro has said its new loyalty card program in Quebec is surpassing expectations. It is also introducing new private label products that focus on healthy and gluten-free offerings.

Metro is Quebec's leading grocery chain with nearly 34 per cent market share. It has more than 65,000 employees in Quebec and Ontario.

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The company operates a network of close to 600 food stores under several banners including Metro, Metro Plus, GP, Super C and Food Basics, as well as over 250 drugstores under the Brunet, Brunet Plus, Clini Plus, The Pharmacy and Drug Basics banners.

Metro is also a shareholder in Alimentation Couche-Tard.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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