Metro says minimum wage jump to add C$50m in costs

[MONTREAL] Canadian grocer Metro Inc. is bracing for as much as C$50 million (S$53.6 million) in additional costs next year due to a minimum-wage increase in Ontario.

The Montreal-based company said it's reviewing how to mitigate the impact of the measure, which it described as "very short notice," after reporting a decline in same-store sales and earnings that missed estimates. Profit for the third quarter ended July 1 rose to 78 US cents a share, missing the analysts' average projection of 79 US cents.

Shares fell as much as 3 per cent and were down 1.5 per cent to C$42.25 at 10:51am in Toronto.

Metro, which operates both discount and regular supermarkets in Quebec and Ontario, has been using price cuts to get shoppers to spend more and offset the impact of food deflation. Its cost discipline has also helped support profit growth.

Chief Executive Officer Eric La Fleche told analysts he's seen increased competition during the quarter, which made the company unable to pass on higher costs for products including poultry and beef.

"We were not backing down. We are competitive," he said. "You see a slight decline in our gross margins, that's largely because of that." More penny pinching will be required as Metro and competitors such as Loblaw Cos and Wal-mart Stores Inc face a 32 per cent increase in the minimum wage in Ontario over 18 months.

Longer term, Amazon.com's acquisition of Whole Foods Market Inc also has investors worried about increased competition in the home-delivery market.

Metro shares have lost 5.1 per cent since June 15, the eve of the Amazon announcement. Loblaw, which said last month the minimum wage increases in Ontario and Alberta will cost an extra C$190 million, has lost 9.7 per cent.

Metro says it's expanding its e-commerce offerings to 60 per cent of Quebec's population. By the end of the year, the company will offer home delivery or the option to buy online and pick-up at the store in the province's major urban areas, La Fleche said.

If Metro shares underperform, investors should take advantage because of the company's assets, management discipline and dense network, Eight Capital analyst Tal Woolley wrote in a note Tuesday.

BLOOMBERG