Discount stores

Canadian shoppers turn to discount stores and no-name brands amid high inflation: Loblaw

CanadaThe Big Three grocers say rising food prices are shaping shopping habits, with Loblaw Companies Ltd. is the latest to offer insight into how people are saving money on their grocery bill amid the surge inflation.

Consumers are shopping more often, buying less with each visit and turning to value-oriented stores as pandemic restrictions ease and the cost of food rises, Loblaw said Wednesday as it reported its first-quarter results. .

The grocery and drugstore retailer said its discount division, which includes No Frills and Maxi, saw strong growth in the quarter, while demand for its house products surged.

Sales of Loblaw’s private label No Name, with its distinctive yellow and black packaging, hit an all-time high, said Loblaw President and President Galen G. Weston.

“It’s an indication of the growing importance that Canadian consumers place on value,” he said on a conference call.

His comments came after Metro Inc. highlighted a similar shift in shopping habits last month.

“The inflationary picture is accelerating and that is having an impact on consumers,” Metro CEO Eric La Flèche said in April. “There is a search for value and a shift to discounting going on.”

Empire Co. Ltd., the parent company of grocery chains Sobeys, Safeway, FreshCo, said in March that customers were buying more of the retailer’s house brands and opting for larger sizes that offered better value.

Canada’s food inflation rate hit 8.7% in March, Statistics Canada said last month.

Loblaw also grappled with its own internal cost pressures in the quarter ended March 26 as prices for fuel, shipping, ingredients and packaging all increased, Weston said.

Loblaw’s chief financial officer, Richard Dufresne, said those costs “pale in comparison to future cost increases on goods for resale.”

Weston said the retailer now has a “central sourcing team” to consolidate its purchasing and supplier negotiations.

The team “evaluates the impact of cost inflation on the cost of a good and this allows us to negotiate with our supplier base,” he said, adding that the company ensures that it does not only accept “real and justifiable cost increases”.

Loblaw was embroiled in a high-profile pricing dispute with Frito-Lay Canada during the quarter, which saw the maker of brands like Cheetos, Doritos, Lays and Ruffles pull its products from Loblaw stores. The two companies said last month that they had mutually resolved the issue.

Meanwhile, Loblaw’s pharmaceuticals business stood out in the quarter, driving a significant portion of sales and gross margin growth, the company said.

Loblaw’s pharmacies, which include Shoppers Drug Mart and Pharmaprix, saw strong in-store and prescription sales.

“As consumer behavior normalized, customers were returning to our Shoppers beauty counters, driving great results in our higher-margin categories like cosmetics,” Weston said.

“Cough and colds have strengthened significantly, the number of prescriptions has increased and pharmacy services have continued their multi-year expansion.”

Same store sales at the Company’s pharmacies increased 5.2%, including prescription sales up 6.8% and front store sales up 3.6%.

Food retail same-store sales increased 2.1%, benefiting from higher than normal levels of in-home dining.

Revenue for the quarter totaled $12.26 billion, compared to $11.87 billion in the same quarter last year.

Loblaw said its earnings available to common shareholders totaled $437 million or $1.30 per diluted share for the 12-week period, compared with $313 million or 90 cents per diluted share a year earlier.

The company said it would pay a quarterly dividend of 40.5 cents per share, down from 36.5 cents per share.

On an adjusted basis, Loblaw said it earned $1.36 per diluted share, up from adjusted earnings of $1.13 per diluted share a year ago.

Irene Nattel, an analyst at RBC Dominion Securities Inc., said in a client note that Loblaw posted another quarter of strong and better-than-expected results, underscoring the “change in favorable momentum” for the business.

By Brett Bundale

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