In the era of $10 cauliflower, food price inflation has been driving Canadians in to the frozen food aisles, according to the CEO of grocery chain Metro Inc.
“When there are rapid declines in the currency, or there are particular market conditions related to weather and the like, we obtain price hikes that we can not pass through” completely to consumers, particularly when you are looking at produce, Eric La Flche told investors on a business call Tuesday. “People do substitute – we are seeing sales of other items like frozen vegetables increase quite substantially when we see new release being too costly.”
The costs of mostly foreign-bought fruits and vegetables, particularly, happen to be rising thanks to the falling Canadian dollar. Montreal-based Metro, the nation’s third-largest grocery chain, said inflation pushed the price of groceries up 2.8 percent within the first quarter ended Dec. 19.
Profit at the grocery chain rose 24.3 per cent at that time to $139.8 million, or 56 cents per share, up from $112.5 million (43 cents) in the same period last year. Same-store sales, or volume at store locations open not less than a year, rose 2.8 per cent, and overall sales were up 4.3 percent to $2.96 billion, which.
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“We consider (the very first quarter) to become a strong quarter, with margins and earnings slightly above our expectation,” Peter Sklar, BMO retail analyst, said inside a note to clients , boosting his target price on the shares to $42 from $40.
“Metro appears to be able to still go through the cost of grocery inflation and that we note the entire year over year improvement in gross margin, which has been an ongoing positive development.”
Food costs are likely to move even higher in 2016, based on a study from the University of Guelph’s Food Institute, which estimates the typical Canadian household will spend as much as $345 more about food this year compared to last. The institute is forecasting food inflation rates across the country of two per cent to four percent.
Meat prices, which rose five per cent last year, are expected to improve up to another 4.5 percent this year; fish and seafood prices are expected to by as much as three percent, while egg, dairy, eggs and grain prices could rise two per cent. Big price increases are expected as well for vegetables and fruit, up to 4.5 per cent this season.
In addition to fresh foods price hikes, La Flche said Metro has noticed some recent price increases from consumer packaged goods companies, though not major ones, and expects to see more inflation in centre aisles from the supermarket around ahead.
“You have to concentrate on value when certain items become from whack,” La Flche said, noting growing house-branded private label goods is a good value-oriented strategy. Private-label goods account for a lot more than 20 percent of sales, and therefore are “trending up,” he explained.
The company is also exploring digital commerce strategies, and can conduct an e-commerce test later this year, but La Flche didn’t elaborate on the plans. Loblaw continues to be testing a “click and collect” e-commerce model at a handful of its Toronto-area stores, where groceries are ordered online and picked up in designated areas away from stores.
Also on Tuesday, Metro increased its dividend to 14 cents per common share, an increase of 20 percent in the same quarter last year.
hshaw@nationalpost.com
Twitter.com/HollieKShaw
