Integration Savings Boost Metro

JON SPRINGER

MONTREAL — Savings generated from the integration of A&P's Canadian business are helping Metro Inc. weather pricing and sales pressures in Ontario, the retailer here said last week.

The company completed the switch of its warehouses to a common purchasing and distribution platform last month as scheduled, and has begun the task of moving stores to common systems, Eric LaFleche, executive vice president and chief operating officer, said in a conference call last week. Metro is on pace to realize about $79 million (U.S.) in synergies this fiscal year related to its 2005 purchase of A&P's assets in Ontario.

“With warehouses behind us, the focus is now on converting retail,” LaFleche said, adding that the company would convert around 17 stores a week to the Metro technology platform through the summer. “The integration is going as well as could be expected given the magnitude of this project and tight schedule.”

Metro said it expects to complete integration of information systems by the fourth quarter, at which point it will discontinue use of A&P's systems in Ontario.

Still to come in the integration process is a merging of private-label offerings, LaFleche added. Metro's board last week approved of a plan to create a two-tier private-label system of around 2,500 SKUs set to roll out nationally starting this fall. The company said it would not provide details on that plan, however, until it informed suppliers and stores of them.

The integration effort will also affect store banners later this year, with Metro saying it will undertake a “banner rationalization” program in Ontario, where, following the acquisition, it operates four conventional store banners (Dominion, A&P, Loeb and Ultra) as well as the Food Basics discount chain. That effort will coincide with some consumer repositioning among stores in Ontario, where all food retailers have been experiencing pricing and sales pressure recently as they ready themselves for Wal-Mart Stores' expansion to grocery supercenters there, LaFleche noted.

“It's a tougher pricing environment [in Ontario] versus Quebec. It has always been competitive, but it's even more so now,” he said.

One analyst who asked not to be identified said Metro is feeling pricing pressure not from Wal-Mart as much as from Loblaw Cos., Ontario's leading conventional store operator.

“Loblaw believes that it has had too-high prices for too long, and so they're kind of thrashing about like a guy in a bar fight — you don't know what they're going to do next,” the analyst said.

Metro has moved to more aggressive pricing zones at conventional stores where competitive activity has intensified, LaFleche said. He added, however, that Food Basics compares favorably to market price leaders. “Food Basics is already priced where it needs to be priced,” he said.

Metro said sales for its fiscal second quarter, which ended March 17, decreased 2.3% to $2 billion. When adjusted for the Christmas holiday, which fell in the first quarter this year but in the second quarter last year, sales increased by 3%. Sales for the first half of the fiscal year were down 1.3% overall, to $4.3 billion.

Net income in the quarter increased 8.4%, to $54.7 million. For the 24-week first half, Metro reported earnings of $114.9 million, a 45.7% increase over the same period in fiscal 2006.