Major Grocery Chain Concerned About Impact of Minimum Wage Hike

Another major grocery chain has expressed concern about Ontario's plan to raise the minimum wage to $15 an hour.

The plan, which has already prompted popular grocer Loblaw to suggest it's going to face serious threats to its bottom line, has also raised concern at Metro.

According to a recent release detailing the brand's third quarter results, operators believe the minimum wage increase could impact the company to the tune of $45 to $50 million. The company said it's "currently analyzing measures to be implemented to mitigate this impact."

The minimum wage hike, lauded by some and criticized by others (particularly those who fear the increase will have a detrimental effect on small businesses) has been a source for anxiety for a number of companies—especially those dealing with what they call a "challenging market."

“In a challenging environment marked by strong competition and continued food price deflation, the company delivered sales and net earnings growth in the third quarter," says Eric R. La Fleche, president and CEO of Metro. "We continue to invest to optimize our store network to better serve our customers, while exercising strong control over operating expenses. As the announced minimum wage increase in Ontario will put significant pressure on our industry in 2018, we will strive to mitigate this impact in order to continue on our growth path."

As for what the company might do to offset the expected impact, a recent Canadian Press article indicated that the company will "accelerate its study of automation."

The company also told The CP that it might have to raise prices going forward, even though "intense competition" has limited the company's ability to pass cost upticks onto customers.

"As a team we will strive to mitigate this impact as much as we possibly can through productivity and cost reduction initiatives, but the size and pace of these increases pose a significant challenge," La Fleche told analysts, as reported by the CP.

According to the third quarter report, the store has seen a dip in same store sales.

The company reports that sales in the third quarter of 2017 reached $4,073.2 million, up 1.4 per cent compared to $4,015.4 million in the third quarter of 2016. That said, same-store sales decreased slightly by 0.2 per cent compared to an increase of 3.9 per cen in the same quarter last year.

Metro also added that its food basket continued to experience a deflation of approximately 1 per cent (inflation of 1.5 per cent last year) which largely explains its lower sales growth.

Sales in the first 40 weeks of fiscal 2017 totalled $9,946.9 million versus $9,859.0 million for the corresponding period of fiscal 2016, an increase of 0.9 per cent.

It'll be interesting to see how major retailers adjust to the minimum wage going forward.