Ontario’s third-largest grocery chain will accelerate its study of automation as it looks to cut costs to offset the provincial government’s plan to raise the minimum wage next year, the CEO of Metro Inc. said Tuesday.
Eric La Fleche said the industry is under the gun because there is little time to adjust to cost increases, especially when intensifying competition is straining margins.
Metro (TSX:MRU) estimates an increase in the Ontario minimum wage to $14 per hour from the current rate of $11.40 will cost it about $45 million to $50 million on an annualized basis in 2018. The impact excludes any pressure to subsequently increase other salaries.
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“It’s the pace that makes it a pretty big challenge but we’re confident that we’ll find some offsets on our own,” La Fleche said during a conference call about its third-quarter results.
The chain said it hasn’t calculated the full impact when the minimum wage rises to $15 an hour in January 2019.
The higher labour costs would account for about eight per cent of the $586 million in net earnings last year and more than a third of the $127 million paid out in dividends.
It’s just the latest cost pressure facing business after enduring several years of increased energy charges.
“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.
He said higher costs resulting from the wage increases could force it to raise prices on the shelves, even though intense competition has limited its ability to pass those costs to consumers.
“Over time if structural costs increase, it could have an inflationary impact.”
The Montreal-based chain said it “will spare no effort” to manage the labour costs but declined to specify whether the changes will have any impact on the number of employees. It has piloted the use of electronic tags on stores shelves and has considered automating its distribution centres.
La Fleche’s comments follow similar warnings by other retailers and a coalition representing a broad range of business groups.
Rival Loblaw Companies Ltd. (TSX:L), which owns Shoppers Drug Mart and grocery chains including Loblaws and No Frills, has said it is mobilizing all its resources to offset the $190-million hit next year from higher minimum wages in Ontario and Alberta.
Discount retailer Dollarama Inc. (TSX:DOL) said it won’t rule out raising prices if labour costs continue to climb, while Magna International has warned that higher costs could affect its business investments in the province.
Movie chain Cineplex Odeon Corp. (TSX:CGX) last year raised ticket prices in response to higher minimum wages, which affect much of its workforce.
An economic analysis commissioned by the Keep Ontario Working Coalition found that 185,000 jobs could be at risk as Ontario businesses stand to take a $23-billion hit within two years of the implementation of Bill 148.
The coalition, which includes groups such as the Ontario Chamber of Commerce and the Retail Council of Canada, said the changes proposed in the bill would force employers to find creative ways to cut costs, such as hiring less and increasing automation.
The Canadian Centre for Policy Alternatives, a national think tank, said research suggests the dire predictions are unlikely to pan out.
David Macdonald, the centre’s senior economist, has said there was little impact on employment from past minimum wage hikes and that forecasts fail to account for increased employee spending.
In a report released Tuesday, the centre said raising the minimum wage to $15 is only a start to addressing the 19 per cent cut in income between 2000 and 2015 among the bottom half of Ontario families raising children.
Metro’s net income for the 16 weeks ended July 1 rose 3.7 per cent to $183 million or 78 cents per share.
Overall sales edged up 1.4 per cent to $4.07 billion but same-store sales were down 0.2 per cent as poor weather caused store traffic to decrease.
Meanwhile, the company said it plans to expand its e-commerce offering to Ontario eventually, but wouldn’t say how soon that may come. By year-end, it plans to offer home delivery and store collection of online purchases in major urban areas of Quebec covering 60 per cent of the population.
Metro also said it is looking to expand its Adonis chain of Mediterranean-inspired food stores in both provinces next year after buying out its minority partners.
