We review Metro Inc.’s second quarter results and progress with the integration of drugstore chain, Jean Coutu.

Solid gains in food with same-store sales up 4.3%

Metro’s second quarter sales increased 27.7% to $3.7bn, reflecting the acquisition of drugstore operator, Jean Coutu. Excluding this, sales were up 4.0%. The retailer’s food same-store sales were up 4.3%, with pharmacy same-store sales up 1.1%. The growth in food sales was supported by higher inflation, accelerating to 2.5% in the quarter, stronger customer traffic and volume gains. Alongside the strong growth in sales, the retailer saw net earnings increase 13.7% to $121.5m.

Source: IGD Research

Rationalising the store network

Metro is on-track to launch its grocery ecommerce offer in Ontario before the summer. It is using the same store-pick model that has been developed in Quebec, undertaking all aspects of fulfillment in-house. The retailer also accelerating plans to rationalise its store network. It plans to convert, relocate or close 12 stores to better meet customer needs and reduce operating costs. Most of these will be undertaken in the Ontario market, with supermarkets converted to its Food Basics discount format.

Change in leadership for pharmacy business

The retailer also announced a change in leadership for its pharmacy division, the Jean Coutu Group. Effective May 31, François Coutu will retire as president, to be replaced by Alain Champagne. Champagne joins Metro from Optimé International, where he holds the CEO position. He has previously served as president at McKesson Canada and held various executive roles with Frito Lay Canada and Procter & Gamble.

Confident om achieving cost synergies

He takes over as the integration of the business into the wider Metro group continues. As it approaches the first anniversary of the acquisition, it has reached a run-rate of annualised synergies of $50m. The pace of synergies will slow moving forward, as it completes the work on procurement, and shifts its focus to integrating retail systems and distribution facilities. Metro plans to adapt the Jean Coutu automated facility in Varennes to also supply its Brunet drugstore network and adopt the Coutu POS and lab platforms for the Brunet business.

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Metro is launching a new initiative in Québec where customers can use their own reusable containers and zipper bags to purchase fresh products at its supermarkets.

Reducing single-use plastic packaging

Going live at the end of April, Metro’s deli, ready-to-eat meals, meat, fish and seafood and pastry counters in all its supermarkets in Québec will accept customers’ resealable plastic containers and bags to package products. This forms part of the retailer’s initiative to reduce the use of single-use plastic packaging. It is currently finalising a new packaging and printed materials policy as part of its plans to reduce packaging waste.

Source: IGD Research

Global action on plastics

Packaging waste reduction has been at the forefront of retailers’ sustainability efforts this year. In January, Walmart Canada announced a new ‘Charter on Plastics’ as part of its commitment to reduce plastic waste across its operations. Key commitments include reducing check-out plastic bags by a further 50% 2025, eliminating single-use plastic straws and replacing them with paper alternatives by 2020 and achieving 100% recyclable, reusable or compostable packaging for its private label products by 2025.

In the UK, Tesco is trialling the removal of plastic packaging for some of its fruit and vegetables. As part of the two-store, month-long trial, plastic packaging has been removed from 45 products where loose alternatives are available. In Scotland, Aldi is currently trialling going plastic-free on five fruit and vegetable products. New Zealand’s Foodstuffs has started to roll-out ‘Project Naked’ where it is using a new misting system to keep fruit and vegetables fresh without the need for plastic packaging. In Germany, Kaufland and its sister company, Lidl, have launched a comprehensive 360-degree strategy to reduce single-use plastics in their stores by 2025. This includes reducing the consumption of single-use plastics by at least 20% by 2025. Several independent, packaging-free food store concepts have also emerged over the last year.

Aligns with our retail trends for 2019

The growing focus on reducing plastic packaging aligns with one of our key global trends for 2019, ‘Doing good is good business’. This year we expect to see retailers and suppliers push their sustainability credentials even further. Beyond reducing their environmental impact, companies will aim to create a positive impact on the environment and society. Initiatives will focus on helping customers and communities live better and more sustainable lives.

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Loblaw is launching a trial digital advertising service that rewards customers with loyalty points for seeing relevant and tailored ads on third-party websites.

Providing customers with more relevant digital ads

This new programme will optimise data from Loblaw’s PC Optimum loyalty and rewards scheme to provide its customers with more relevant ads as they browse the internet. PC Optimum is Canada’s leading loyalty programme, with over 18bn members. Initially, the service will be trialled with a small number of customers which will enable them to earn additional rewards points for seeing the ads.

Source: IGD Research

Opportunity for national brands to target loyalty scheme members

While the retailer has previously optimised its PC Optimum programme to provide customers with personalised offers and ads through its own web channels and email, the trial expands this to other websites, including social media sites. The service will enable national brand advertisers to target PC Optimum members across a range of digital properties. The ads will include a visible identifying mark or logo associated with PC Optimum.

Aiming to create more transparency in the media industry

Several other retailers, including Walmart, Kroger and Albertsons, have set up digital marketing operations, with a view to selling ads across first-party and third-party websites. However, this is the first instance where customers will be rewarded for allowing the use of their data to expose them specific adverts. Loblaw will be hoping that the prospect of providing greater transparency and seeing more relevant ads will prompt them to opt-in to the programme.

Creating new income and profit streams

Digital marketing is becoming a core competency for grocery retailers as they develop a strong digital presence. Last year, Kroger announced that digital marketing would form a key part of its alternative profits stream moving forward. It is aiming to build one of the most transparent media companies in the sector. Recently it formed an integrated media and measurement relationship with Pinterest which enables advertisers to optimise Kroger's data for targeting on the social platform.

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