Discount stores

Loblaw sees more customers turning to discount stores amid 5% inflation

A spike in food inflation means more Loblaw customers are turning to the company’s discount brands like No Frills. (Rick Madonik/Toronto Star via Getty Images)

Loblaw Companies Ltd. (L.TO) saw sales surge in the final quarter of the year as Omicron-related shutdowns drove Canadians to eat at home and rising inflation pushed prices up.

Canada’s largest retail grocery chain expects inflationary pressures to continue through 2022 as supply chains remain volatile. Loblaw says inflation at its stores hit 5% in the 12 weeks ending Jan. 1, according to the most recent January consumer price index (CPI) level by 5.1 percent.

“The 5% in the quarter is significant and the pressure continues to exist as we look to the future, particularly over the next two months. This is the result of very real cost pressure throughout value chain,” Loblaw executive chairman and president Galen Weston said Thursday during a conference call with analysts.

“When it comes to the customer, we don’t see a ceiling reached by consumers in terms of retail price. However, they are becoming more and more price-sensitive, there’s no doubt about that.”

Soaring food inflation means customers are increasingly turning to the company’s discount brands like No Frills, which Loblaw says has benefited from the “return of price-sensitive customers” over the past year. his last trimester. At the same time, the company’s mainstream brands, such as Loblaws and Zehrs, performed strongly in part due to promotions. Loblaw also says it’s seeing increased engagement in its PC Optimum loyalty program, which Weston says provides “substantial value” to customers who proactively engage in the program.

While some customers are cutting back on their usual purchases — for example, buying chicken and pork instead of beef — Weston says the company isn’t seeing changes in behavior that would be typical of 5% inflation. He says this is partly due to the pandemic, which has seen people move away from discount brands as they ate at home.

“It’s not as extreme as you might expect, but it’s there and it shows up most explicitly in discount growth,” he said.

“It’s been particularly noticeable over the last couple of months…we’ve really seen that push.”

Weston says the company will continue to monitor the supply chain situation while ensuring its retail prices remain competitive.

But efforts to control costs appear to have strained Loblaw’s relationship with at least one supplier.

Frito-Lay Canada, one of Canada’s largest food manufacturers, halted deliveries to Loblaw stores after the grocer refused to accept a price hike. The situation has left the chip and snack aisles of many Loblaw stores less stocked than usual or stocked with the retailer’s house brands, President’s Choice and No Name.

Asked by an analyst about how Loblaw handles supplier relationships, CFO Richard Dufresne said the company has a team of experts who analyze item costs, including input costs related to packaging, labour, transport and the price of raw materials. Ingredients.

“Thanks to their analysis, we are well placed to assess the requests sent to us,” said Dufresne.

“Also, we deal with a large number of suppliers and that gives us a very solid perspective on what is happening in terms of rising costs. That is how we manage it at the moment.”

Loblaw says its fourth quarter profit more than doubled from a year ago, boosted by a one-time gain related to a Supreme Court ruling on a tax case. The grocery and drugstore giant says its net income totaled $744 million or $2.20 per diluted share for the 12 weeks ended January 1, compared to profit of $345 million or 98 cents per diluted share for the 13-week period ended January 1. 2, 2021.

Revenue totaled nearly $12.8 billion, down from nearly $13.3 billion a year earlier when the quarter included an extra week.

With files from The Canadian Press

Alicja Siekierska is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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