Upheaval in Canada’s Grocery Space Continues

With disruptive forces at work, it’s getting tough for the incumbents to stay ahead of the game.

| More on:
The Motley Fool

Metro (TSX:MRU) announced its 3rd quarter earnings this morning.  The company managed to grow EPS at a rate of 8% over the last year’s 3rd quarter, despite same-store-sales growth of -0.9% over the same period.  Earnings were in-line with analyst estimates, and from a numbers stand point, the report was relatively benign.

More interesting were the corporate developments that Metro announced.  In Ontario, the company is planning on either closing or converting 15 of its namesake stores.  Although locations weren’t disclosed, those stores that aren’t set to be shuttered will switch to the company’s discount Food Basics banner.  The company expects to incur a $40 million charge to go along with these store closings/change overs.

This move is further proof of how tough the Ontario grocery market has become.  It also helps illustrate why both Sobey’s (TSX:EMP.A) and Loblaw (TSX:L) have made moves to diversify away from this market, either geographically or by entering a new line of business.  Accelerated new store openings in Ontario from the likes of Wal-Mart and Target (NYSE:TGT) are severely disrupting the landscape for groceries in Canada’s most populated province.

The other announcement that was somewhat intriguing from a corporate perspective was that Metro has signed on to operate Target’s in-store pharmacies in Quebec.  Target plans to open 25 new stores in la belle province, 18 of which are expected to have in-store pharmacies.  The first of these 25 is set to open this fall.  The addition of 18 pharmacies, which will fly under Metro’s Brunet banner, expands Metro’s pharmacy footprint by 10%.

Foolish Takeaway

The Metro release provided investors with some good and some bad.  Short-term the company appears to be making the appropriate strategic tweaks to remain the steady-as-she-goes type play that it is.  Longer term however, one has to wonder if these moves won’t have more strategic significance.  Could the “prettying” up of the Ontario operations merely be a preliminary step to eventually divest of these assets?  Time will tell.  One thing that is clear, the Canadian grocery space has become one tough business nut to crack.

Canadian grocers are doing their best to deal with an increasingly competitive environment.  The barriers to entry in their business have been toppled by the big U.S. chains.  If you’re looking for companies that have their barriers to entry firmly intact, click here now and we’ll send you our special FREE report “3 U.S. Companies That Every Canadian Should Own”.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler does not own shares in any of the companies mentioned at this time.  The Motley Fool does not own shares in any of the companies mentioned at this time.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Oil pumps against sunset
Energy Stocks

Is it a Good Time to Buy in the Energy Sector?

Boosted by a very bullish supply/demand environment, energy stocks like Canadian Natural Resources and Tourmaline have much further to go.

Read more »


2 Stocks to Buy Offering Better Value Than Air Canada

Air Canada has been a popular stock for years, but despite its low price, these two picks are much better…

Read more »

money cash dividends

How to Make $373/Month in Passive Income With These 2 TSX Stocks

You could bring in passive income of $4,482 annually, or $373 per month!

Read more »

clock time
Stocks for Beginners

3 Stocks to Start Investing Today

Looking for a set of stocks to start investing today? Here are some great options that offer growth and income…

Read more »

investment research
Dividend Stocks

Young Investors: Create Cash Flow With This Top Dividend Stock

If you're a young investor looking for cash flow, you need a strong dividend stock and solid banking program designed…

Read more »

Illustration of bull and bear

Is the Stock Market Selloff Over?

Throughout this week, many stocks have been gaining value and rebounding from their lows. So, is the stock market selloff…

Read more »

potted green plant grows up in arrow shape

Retirement 101: How Investors Can Turn $20,000 Into $500,000 in 25 Years

These top TSX dividend stocks have made some investors rich.

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 Superb Dividend Stocks I’m Ready to Buy

The market is full of great options for income-seeking investors. Here are three superb dividend stocks to buy now.

Read more »