Metro uses profit margins to absorb food inflation, resists calls for higher wages

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Metro Inc., which operates Canada’s third-largest grocery chain, recorded a healthy profit over the final few months of 2021, pushing through staff illnesses and chaotic supply lines that resulted in product shortages and the worst price increases in a decade.

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The Montreal-based company reported net earnings of $207.7 million in the quarter ended Dec. 18, an increase of 8.6 per cent from the same period a year earlier. Sales at Metro’s 1,600 supermarkets and pharmacies rose to $4.3 billion, up 7.1 per cent compared with pre-pandemic levels two years ago.

Metro’s results suggest the company’s size is helping it withstand some of the most turbulent conditions the food industry has faced in years. Terrible weather in many of the world’s major farming regions, combined with ongoing supply bottlenecks related to COVID-19, caused grocery prices to surge 5.7 per cent in December from a year earlier, the biggest increase since 2011, Statistics Canada reported on Jan. 19.

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The latest wave of COVID-19 infections also sparked flash labour shortages across the economy, adding to the difficulty of sourcing ingredients, keeping factories running at full capacity, and transporting goods. Anecdotal evidence suggests the system is strained, yet Metro’s chief executive insisted his company is finding ways to keep stores adequately stocked.

“There’s food on our shelves,” Eric La Flèche said at a virtual news conference after releasing his latest earnings report. “There’s certainly less variety than there should be, and we’re not as full as we’d like to be. But we’re not missing food out there.”

There’s certainly less variety than there should be, and we’re not as full as we’d like to be. But we’re not missing food out there

Eric La Flèche

Metro’s results belie the narrative that runaway inflation is wreaking havoc on the economy in another way: profits were higher in part because costs related to the pandemic decreased from 2020, when the company was spending heavily to keep the coronavirus out of its stores, and rewarding employees with pandemic bonuses. In fact, Metro is now using its profit cushion to absorb some of the higher costs from food producers, acting as a firewall between elevated wholesale prices and what consumers actually pay at the register, La Flèche said.

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“The profitability of the company is a function of sales, margins, expenses. I think we’ve had good control of our expenses,” La Flèche said. “On the margin side, I can tell you that our gross margins in food are not necessarily up. Actually, we’re not passing on all the cost increases that we’re getting from our suppliers.”

A Metro spokesperson later confirmed that the reduction in COVID-19 expenses included fewer costs related to store greeters, who managed store traffic during the peaks in the pandemic, as well gift cards paid out to staff as bonuses.

Grocery sales have been elevated through much of the pandemic, helped along by public health restrictions on restaurants that often left consumers little choice but to cook at home. But the big grocers have also sustained some serious bruises to their reputations in the past two years, particularly around their compensation of front-line workers in stores and distribution warehouses.

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In the latest wave of COVID-19 infections, labour groups have been pressuring grocers to bring back the bonuses they paid during the first phase of the pandemic, typically wage top-ups of $2 per hour. The “hero pay” premiums became a public-relations victory for the industry in late winter and early spring of 2020, but it backfired when the three largest chains — Loblaw Companies Ltd., Sobeys’ parent Empire Co. Ltd., and Metro — cancelled the bonuses on the same day in June 2020.

While Metro has not reinstated the hourly bonuses, it has given staff a series of three gift cards to Metro stores. La Flèche used his latest earnings release to announce a fourth round of gift cards, worth $300 for full-time staff and up to $150 for part-timers, to be handed out in February.

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“We’re proud to do it,” he said. “We think it’s the right thing to do.”

Metro, which includes the Food Basics grocery banner and the Jean Coutu chain of drug stores, also announced a quarterly dividend increase of 10 per cent, to 27.5 cents per share.

Labour unions called the new gift-card bonuses inadequate, considering the widespread illness and burnout among their members. Jerry Dias — the national president of Unifor, which represents more than 8,000 Metro workers — said the company’s profits this quarter are proof they could pay more to staff.

“I’m totally disgusted by this thing,” he said. “They can’t reinstate the lousy $2 pandemic pay for the workers that are creating the wealth? What is wrong with the society we live in?”

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They can’t reinstate the lousy $2 pandemic pay for the workers that are creating the wealth?

Jerry Dias

Unifor, the largest private sector union in Canada, represents employees in the National Post’s Toronto newsroom.

Teamsters spokesperson Stéphane Lacroix said permanent wage increases would be a more appropriate reward for front-line staff.

Job vacancies in Canada hit an all-time high in the third quarter of 2021, the latest period for which Statistic Canada data is available. Food and beverage stores were short 24,635 workers, up 67 per cent compared to the third quarter of 2019.

“Giving away gift cards may seem like a good idea at first,” Lacroix said in an email, “but I think this industry should treat its workers better if it doesn’t want the labour shortage that affects it to get even worse.”

La Flèche said “almost all” his workforce is unionized and their compensation is governed by collective bargaining agreements.

“Whenever bargaining is up, we negotiate as best we can while remaining competitive in our industry,” he said. “We don’t operate in a vacuum. We operate against global players — most of them non-unionized by the way. And we provide, we think, good compensation with good benefits.”

• Email: jedmiston@postmedia.com | Twitter: jakeedmiston