Metro is a leading food and pharmaceutical company based in Quebec and Ontario and one of the largest food retailers in Canada.

Due to the similar business activities, the two business areas Food Operations and Pharmaceutical Operations are combined into one reportable business segment. Metro has developed a successful market segmentation strategy with different food banners targeting three different market segments.

Metro operates a network of 953 grocery stores under various banners, including Metro, Metro Plus, Super C, Food Basics, Adonis and Premiere Moisson, as well as 648 drug stores, mostly under Jean Coutu, Brunet, Metro Pharmacy and Food Basics Pharmacy banners. Metro and Metro Plus lead the supermarket chains in Quebec and Ontario. Metro, Super C, Jean Coutu and Brunet also lead the industry in terms of customer satisfaction.

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Investment data

Sales growth and market exposure

With more than seven decades of experience in the consumer goods industry, Metro is known for its fresh products and premium quality. The company has built a good reputation and won the trust of its customers. The grocery banners – Metro supermarkets, Super C and Food Basics discount banners, and Adonis’ international grocery stores – target three different market segments, while the Premiere Moisson banner specializes in baked goods, pastries, delicacies and other groceries.

To increase customer convenience, the company offers same day delivery for its online shopping service and allows customers to collect their order from participating stores. Metro is also investing in strengthening and modernizing its distribution network. The company plans to build new distribution centers that will offer a wider range of products and will be automated.

Metro is expanding both organically and through acquisitions, increasing its customer base and retail presence. The largest acquisition was that of the Jean Coutu Group, which resulted in the creation of a $ 16 billion retail leader. Metro opened seven new stores, completed two moves and completed 17 renovations last year.

Metro’s sales rose more than 6% in the first quarter of 2021 and saw growth in both the grocery and pharmacy businesses. Online grocery sales also grew an impressive ~ 170% year over year. The current crisis situation has further demonstrated the resilience of the company’s supply chain and its ability to maintain business operations.

Metro expects a milder cold and flu season will adversely affect commercial pharmacy sales. However, the company is promoting online shopping and in-store ordering services to increase sales. The company expects food revenue to continue growing faster than normal.

Dividends

Metro is a dividend aristocrat. It has increased its dividends significantly, increasing them at an impressive rate of 16% + CAGR over the past decade. The company’s most recent dividend increase of more than 11% was the 27th straight year of dividend growth. Metro increased its dividend by more than 12% last year. It has a dividend yield of 1.8% and a policy of maintaining its payout ratio close to 30% -40%. Metro currently has an appropriate payout ratio of 31%.

Metro offers essential services and therefore has a regular cash flow. The company’s cash flow is sustainable as it is the essential food and drug business. Metro is making good progress on its $ 420 million investment plan to build a new automated fresh and frozen food distribution center in the greater Montreal area and expand the Laval and dairy distribution center.

The acquisition of the Jean Coutu group should bring synergies of $ 75 million within three years, and Metro has achieved that goal by the end of fiscal 2020. After the acquisition, Metro’s sales network expanded to 1,601 branches.

The growing demand for food and medicine should serve as a tailwind for this dividend aristocrat. Metro continues to invest in its retail networks, merchandising and loyalty programs, and technology to create a better customer experience. A proven business model, extensive infrastructure for business and distribution networks and a well-known brand name form a deep rift around Metro’s business.

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competition

Metro faces competition not only from traditional brick and mortar stores, but also from online gamblers. The company is expanding both online shopping and delivery options as it is under heavy pressure from Amazon.com. In the conventional area, Metro competes with Loblaw Companies Ltd., another leading grocery chain in Canada. Another contemporary is Sobeys, the second largest grocery retailer in Canada. Competition remains fierce given the high and rapidly changing consumer expectations.

Bottom line

Metro is one of Canada’s top grocers and should benefit from its business with defensive consumers in the face of the pandemic outbreak. As a result of the lockdown, online sales have almost tripled and there is an increasing trend towards buying local products and shopping in the community.

Metro has also launched healthier foods under one brand and introduced branded organic baby products. The company continues to modernize and upgrade to meet these changing customer needs, and continues to strengthen its position as the consumer defense giant in the nation.

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