Metro warns of food cost increases as food manufacturers pass along higher costs

·3 min read

Canada's grocery industry is facing rising inflation with more food cost increases expected to hit supermarkets in the coming months, the head of one of the country's largest grocery chains said Wednesday.

Metro CEO Eric La Flèche said food manufacturers are experiencing inflationary pressures and have started to pass along those cost increases to grocers.

"There are cost increases coming because of commodity issues, weather issues and labour costs at the vendor end," he told analysts during a conference call.

"We're working hard to contain those costs and make sure that we are market competitive."

The Montreal-based grocery and drugstore retailer reported Wednesday an uptick in profit in its fourth quarter, even as grocery sales edged lower as public health measures were eased and consumers returned to restaurants over the summer.

However, La Flèche said rising inflation is prompting shoppers to look for value, with some potentially forgoing restaurants to cook more at home.

"Restaurants were opening up this summer, we certainly felt that, but our sense is that consumers are consuming more at home right now than they were over the summer," he said.

Still, customers could start noticing higher prices at grocery stores, as well as potentially some missing products.

Metro said food basket inflation was about two per cent in its fourth quarter — double the one per cent recorded in the previous quarter.

La Flèche said meat and dairy products were the main drivers leading to higher costs at Metro grocery stores.

Statistics Canada said Wednesday the annual pace of inflation in October rose to 4.7 per cent as the consumer price index posted its largest year-over-year gain since February 2003. The increase followed a 4.4 per cent year-over-year increase in September.

Supply chain issues are also causing a shortage of some goods on grocery store shelves.

"There are (stock keeping units) that continue to be hard to get supplied and to get the quantities that we would like," La Flèche said. "There are some key items where we are on allocations, the whole industry is."

Metro reported a fourth-quarter profit of $194 million or 79 cents per diluted share, up from a profit of $186.5 million or 74 cents per share in the same quarter a year earlier.

Sales in the quarter totalled $4.09 billion, down from $4.14 billion in the same quarter last year when the company said it saw exceptionally strong sales due to the pandemic.

La Flèche said the company recorded net earnings growth in the fourth quarter "despite lower sales as we cycled exceptional sales last year."

"As government restrictions eased over the summer, a portion of food consumption transferred back to restaurants," he said in a report to shareholders. "However our food sales continue to compare favourably to pre-pandemic levels."

The company, which operates under several banners including grocers Metro, Metro Plus, Super C and Food Basics, as well as drugstores under the Jean Coutu, Brunet, Metro Pharmacy and Drug Basics banners, said food same-store sales were down 2.9 per cent compared with a year ago, while pharmacy same-store sales were up 4.1 per cent.

On an adjusted basis, Metro said it earned 81 cents per diluted share, up from an adjusted profit of 77 cents per diluted share a year ago.

Analysts on average had expected an adjusted profit of 80 cents per share and $4.14 billion in sales, according to estimates compiled by financial markets data firm Refinitiv.

This report by The Canadian Press was first published Nov. 17, 2021.

Companies in this story: (TSX:MRU)

Brett Bundale, The Canadian Press

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