MONTREAL - The prospect of facing Wal-Mart Canada as it prepares to open supercenters in Ontario doesn't faze Pierre Lessard, president and chief executive officer of Canadian supermarket operator Metro here.
After all, the company has bulked up to become Canada's third-largest grocer with the $1.5 billion (U.S.) purchase last August of A&P's 236 stores in Ontario.
The acquisition boosted Metro's annualized sales to $9.5 billion from $5.7 billion in fiscal 2005, giving it a 24% share of the Ontario grocery market and a 16% overall Canadian market share, including its estimated 35% share of the Quebec market.
Lessard told shareholders at the annual meeting here last month that Metro is well-positioned to meet any competition that Wal-Mart may throw its way. He said the Canadian discount sector is already highly developed and that Wal-Mart relies mostly on dry goods as opposed to Metro's accent on fresh and prepared foods.
"Obviously, we have some concerns," he conceded. "Nobody likes to see new competitors coming into the market. But we are very strong in the discount segment. Our Super C and Food Basics are very competitive in price with any type of operation."
Metro is not going to follow the lead of Loblaw Cos. and bulk up on nonfood items to fight Wal-Mart.
"We don't intend to get into major nonfood items in a big way or offer white goods and TV sets. We will remain for the most part a food store," Lessard said following the annual meeting.
"A lot of our stores are located in urban areas where there's no space available for large surface stores," added Eric Richer La FlFche, executive vice-president and chief operating officer. "But we will always pay close attention to our costs, because we have a lot of respect for that competitor."
Asked if Metro would consider another acquisition if an opportunity arose, Lessard said his main priority is digesting the A&P deal, which will take two years to complete at a cost of $48 million.
"But if an opportunity arrived in Canada, I think we would be quite interested in looking at any acquisition. Our next move would likely be in Western Canada," where the company doesn't operate any stores.
For the fiscal first quarter that ended Dec. 17, 2005, Metro posted a profit of $27.6 million (U.S.) or 25 cents a share, down from $33.2 million or 35 cents a year earlier. Excluding integration and rationalization costs related to A&P and additional tax expenses, profit was $42.7 million or 37 cents a share.
Metro realized $6.8 million in cost savings during the first quarter and expects to find total savings of $52 million over two years by streamlining operations with A&P in warehousing, distribution and information technology.
Revenue during the quarter increased 74.5% to $2.2 billion from $1.3 billion, as the A&P stores were included in results for the first time.
Same-store sales were up 0.9% during the quarter, with A&P at 0% growth and Quebec stores up 1.6%, according to analyst Perry Caicco of CIBC World Markets, Toronto, who added that A&P results shouldn't be a concern.
"In a market where the leader (Loblaw) is not generating positive same-store sales, the 'zero' seems almost like an accomplishment," he said.