Consumers are being forced to spend more on food, particularly fresh foods like fruits and vegetables, thanks in part to the drop in the loonie, and that’s helping lift the bottom line for supermarket operators.
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On Wednesday, Metro Inc., the country’s third-largest grocery chain, reported a double-digit jump in earnings in the latest quarter as the company passed through price increases to customers while keeping a lid on costs. A concerted push to sell more fresh items is also paying off, company officials said.
“Traffic, basket and tonnage is all up,” Eric La Flèche, Metro’s CEO, said on a conference call.
Same store sales, a key metric that shows the ongoing pace of purchases at established locations, increased 4.3 per cent — above experts’ expectations.
Like the country’s other big grocers, Metro has been adding more fresh food at many stores; in part reflecting shifting consumer tastes for healthier eating choices, and also the belief that fresh food helps generate bigger profit margins.
While some experts are skeptical about whether the deeper push into fresh actually benefits supermarkets at all, Metro’s La Flèche said the plan is working.
MORE: More fresh food, more problems for supermarket owners, experts say
“Yes, we incur more expense and [food waste] to deliver that. But net net we are able to increase [profit] margins, as you saw in our numbers,” he said. “That takes great execution by our teams … it’s easy to get on paper, it’s not always easy to get in reality.”
With more fresh food on offer, consumers are buying more, which for them is now coming with the added cost of the currency’s dive. Most of the country’s produce and other fresh foods are sourced abroad, which means the nearly 20 per cent plunge in the loonie in the past year is stoking prices at the wholesale level and retail.
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Meat inflation cools
At Metro stores, overall prices moved 3.5 per cent higher in the spring compared to the same period a year earlier, the company said.
Yet La Flèche said meat price inflation – the major underlying force in food inflation generally in recent years – could at last be taking a breather.
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Surging meat prices have become tricky for grocers who must decide how much of the hike to pass onto shoppers. With current prices for beef and pork where they are, experts suggest more consumers are “trading down” or buying cheaper products.
A deceleration in meat price growth will start to benefit supermarkets, La Flèche said, by winning back some shoppers, convincing them to return to making bigger deli purchases.
“We’ve seen inflation in meat prices come down. There’s still inflation albeit at lower levels than what we’ve seen,” he said. “I think that’s good news for everyone, consumers number one.”