Metro’s Moi loyalty program takes aim at Loblaw’s PC Optimum

Canada’s Big Three grocers are having another strong year even as their inflation-weary customers turn to discount stores to stretch their shopping dollars.

Consumers are spending more at these cheaper price points and are substituting private label products for name brands. But, in a boost for the grocers, shoppers are spending more overall, as they dine out less.

Loblaw Co. Ltd., (TSX: L), Metro Ltd. (TSX: MRU), and Empire Ltd. (TSX: EMP.A) account for about 60% of Canadian grocery sales. To meet demand, they are opening more discount stores, with Loblaw having the most and Empire the least. They are improving logistics and using loyalty programs to entice more spending.

Yesterday we took a look at Loblaw, the analyst’s favourite. Today we take a look at Metro, third by size with a heavy concentration in Quebec and Ontario. About a quarter of its stores are discount brands. In Ontario that is Food Basics. Metro has just launched its Moi loyalty program in the province taking aim at Loblaw’s PC Optimum.

Metro’s shares are up 33% in the last 12 months.

Here’s a closer look:

Background: Metro is Canada’s third largest grocer with 93% of its stores in Ontario and Quebec. Its banners include Metro, Super C, and Food Basics. It owns drugstores under the Jean Coutu, Metro Pharmacy, and Food Basics Pharmacy banners with about 80% of the pharmacies in Quebec.

Performance: The shares closed Wednesday at $92.14 and are up 34% year-to-date.

Discussion: Metro reported sales growth but a slight profit decline in its fourth quarter as costs associated with its automated distribution centres were absorbed. Last year’s fourth quarter for Metro was 13 weeks, while this year’s was 12 weeks for accounting purposes. When the results are adjusted, sales were $4.9-billion, 1% higher. Net earnings fell by 1% to $219.9 million. Earnings per share grew slightly to $0.98. The results were in line with expectations.

Metro has invested more than $1 billion in the distribution centres in Terrebonne, Quebec and the Toronto suburb of Etobicoke.

Kathleen Wong, an analyst at Veritas Research in Toronto, said the centres will help Metro cut costs by streamlining frozen food distribution. Processing orders in the centres is 2.5 times faster than at traditional depots. They are fully automated which means employees are only needed in the receiving and shipping areas.

Ms. Wong says Metro’s same-store sales growth has been outperforming Loblaw and Empire during the past several quarters and the new distribution centres will add to that momentum.

Metro launched its MOI Rewards program in Ontario at the end of October. MOI is tied into an RBC credit card and offers points for purchases which can be redeemed to pay at check-out.

CEO Eric La Fleche said MOI added 1 million new members in the month since its Ontario launch, bringing it to 2.5 million members. Members spend on average 50% more than non-members. PC Optimum has 16 million members.

Dividend: Metro increased its dividend in January by 10.7%, its 24th consecutive year of increase. The $0.335 quarterly rate yields 1.49%.

This article appeared in a recent issue of the Internet Wealth Builder.  For information on how to reprint this article please view this page.