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A woman walks past a Metro grocery store in Toronto.Doug Ives/The Canadian Press

Grocery store owner Metro Inc. MRU-T executives say they are not passing on all of their cost increases to shoppers, even as prices in stores have increased and the company reported a 9-per-cent jump in third-quarter profit.

“Our costs have gone up significantly. We are absorbing some of those costs,” chief executive officer Eric La Flèche said on a call with analysts Wednesday to discuss the financial results.

The Montreal-based retailer reported that its food basket inflation was 8.5 per cent. Metro’s internal inflation is based on prices for a basket of frequently purchased goods at its stores, but is not directly comparable with the Consumer Price Index that Statistics Canada uses to track inflation. According to Statscan, grocery prices across the country rose by 9.4 per cent in June compared to a year earlier, slowing from a 9.7-per-cent jump in May.

Metro’s net earnings grew to $275-million or $1.14 a share in the 16 weeks ended July 2, compared to $252.4-million or $1.03 a share in the same period last year.

Just like at other grocers, Metro’s customers are trying to cut back where they can as they feel squeezed by rising prices. People have been “trading down” to lower-priced cuts of meat, buying more private-label products such as Metro’s Irresistibles and Selection brands (which carry higher profit margins for the retailers that own those brands), and are switching to lower-margin discount grocery stores such as Food Basics at an accelerating pace.

“The consumer is reacting and adjusting their behaviour. A lot of consumers are on budgets,” Mr. La Flèche said. “Overall, I’d say the consumers are healthy. Unemployment numbers are at record lows, people are working. But these are high inflation numbers at the pump and in the stores. So there is a shift, for sure, to value. And it’s our job to provide the best value we can.”

Discount locations account for just under 40 per cent of Metro’s store network, according to the company. Private-label products represent 20 to 25 per cent of Metro’s sales on average.

Metro’s sales rose slightly in the third quarter compared to the same period last year, even as sales volumes fell, as lifting restrictions have caused some Canadians to travel more and return to restaurants in recent months. Conversely, some high-margin categories in Metro stores, such as deli, hot foods and prepared meals, are seeing sales rise significantly – including pizza, roasted chicken and sandwiches – a trend Mr. La Flèche said he expects to continue, because they offer lower prices relative to such items at restaurants.

Metro’s food sales kept pace with the third quarter last year, when grocery purchases were higher than usual because of the pandemic, and online food sales were flat compared to a 19-per-cent jump at the same time last year. Overall, sales grew by 2.5 per cent to $5.87-billion. Food same-store sales – an important metric that tracks sales growth not related to new store openings – were up 1.1 per cent. Pharmacy same-store sales, meanwhile, grew by 7.2 per cent.

The company, which owns grocery chains including Metro, Food Basics and Super C, as well as Jean Coutu and Brunet drugstores, reported that a slight decline in gross margin in its grocery division was offset by stronger performance at its pharmacy locations. Pharmacy sales received a boost from strong over-the-counter drug sales, distribution of rapid tests and other COVID-related services, and brisk sales of cosmetics as people socialize more and return to offices.

But Metro continues to face pressure on costs, not just as food suppliers have asked for higher prices from retailers, but also as transportation, energy and labour costs rise. Labour shortages are leading to growing instances of overtime pay, Mr. La Flèche said, as some positions remain open and existing staff work extra hours to keep stores running.

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