Competition pushes Metro to reorganize Ontario stores

The Montreal-based company says it will convert some of its Metro stores to the Food Basics discount banner in Ontario.

Grocery chain's sales slipped in 3rd quarter

Montreal-based Metro Inc. operates a network of more than 600 food stores in Quebec and Ontario under several banners including Metro, Metro Plus, Super C and Food Basics. (Paul Chiasson/Canadian Press)

Metro Inc. plans to reorganize its Ontario grocery retail network over the coming months, affecting 15 Metro stores that will either be closed or converted to the Food Basics discount format to contain costs amid intense competition.

The Montreal-based company, one of Canada's largest grocery retailers, says it will offer buyouts to some of its unionized employees but didn't provide details about how many employees or which locations will be affected.

Metro has more than 600 food stores under several banners and about 250 pharmacy stores in Ontario and Quebec. It employs about 65,000 people in total.

Metro president and CEO Eric La Fleche. (Paul Chiasson/Canadian Press)

The Ontario reorganization was announced in Metro's latest quarterly report, which says it had $149.8 million of net earnings in its third quarter, ended July 6.

The profit was up about four per cent from $144.4 million the same time last year but its sales slipped by nearly one per cent or $26 million to $3.573 billion from $3.599 billion.

The company says its next quarter will recognize a $40-million restructuring charge related to the Ontario network reorganization.

"We achieved net earnings growth in the third quarter due to good margin management and strong operating cost control in a difficult competitive environment, particularly in Ontario," said Metro CEO Eric La Fleche

"In order to better meet customer needs and reduce operating costs, we will carry out a reorganization of our Ontario store network over the next few months that will affect some 15 stores and entail a restructuring charge of about $40 million in the next quarter.

"We are confident that these investments in our network, combined with our merchandising programs will allow us to continue to grow despite increased competition."

Separately, Metro subsidiary McMahon Distributeur Pharmaceutique Inc., said Wednesday it is partnering with U.S.-based retailer Target on operation of Target's in-store pharmacies in Quebec.

McMahon will provide inventory and operational support through its Brunet banner.

Target plans to open its first 25 stores in Quebec this fall, part of its larger expansion this year of 124 stores across Canada. 

Intense competition

Metro's adjusted earnings from continuing operations were about the same, resulting in $1.55 per share of adjusted EPS, up from $1.46 a year last year.

The third-quarter results were in line with analyst estimates compiled by Thomson Reuters.

In addition to intense competition particularly in Ontario from supermarket rivals such as Loblaw's and Sobeys, Metro's discount banner Food Basics is fending off expansion by Walmart and Target.

Analysts say the Montreal-based supermarket chain is facing increased pressure to expand its reach following recent deals by Loblaw's to purchase Shoppers Drug Mart and Sobeys to buy Safeway Canada based in Western Canada. Quebec-based Jean Coutu Group has been named as one of the likely takeover targets.

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, with more than 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.