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Grocer Loblaw Companies Ltd. focusing on smaller stores, high-quality fresh food

The head of Loblaw Companies, the country's largest supermarket chain, said Thursday that savvy shoppers are no longer just looking to pay the lowest prices they can for food.

Galen G. Weston, the company's executive chairman and newly named president, said Thursday that data from its latest quarter showed that customers are willing to pay more if they can get a wide assortment of high quality fresh food.

"Early indications across the board suggest that when we put the right proposition in front of the customer, price is not the biggest determinant of what they choose to buy," Weston said after Loblaw released quarterly financial results.

Weston said that shelling out more for produce is a trend that can be tracked across nearly all of the grocer's banners, including at its discount chain, No Frills.

Loblaw is currently navigating its way through a competitive time in the grocery industry, with U.S. entrants like Target, Amazon and Walmart trying to lure away customers with lower prices and low-cost or free shipping.

On top of that, the food retailer is also facing inflationary pressure with the rising cost of beef and produce. Weston said the company absorbed some of the cost difference in the last quarter and didn't raise prices sharply.

Canada's domestic supermarket giants have responded to increased competition by adding or expanding stores. Last year, Sobeys bought Safeway Canada for $5.8 billion and Loblaw began the process of acquiring Shoppers Drug Mart.

The Competition Bureau gave conditional approval of the $12.4-billion Shoppers deal in March but required Loblaw to sell a number of locations — a process that hasn't been completed.

In its latest results, Loblaw (TSX:L) reported a loss of $456 million or $1.13 per share for the three-month period ended June 14. The loss compared with a profit of $177 million, or 63 cents per share in the same quarter of 2013. However, excluding the adjustments related to the Shoppers acquisition and other one-time items, the company said it earned $301 million, or 75 cents per share, for the quarter compared with a profit of $181 million, or 64 cents per share a year ago.

Analysts on average had expected a profit of 67 cents per share, according to data compiled by Thomson Reuters.

The grocer said the addition of Shoppers Drug Mart helped boost revenue nearly 40 per cent to $10.3 billion compared with $7.5 billion year-over-year. Sales at Shoppers totalled $2.61 billion in the quarter and its same-store sales increased 2.5 per cent over the second quarter of 2013.

For the second quarter, Loblaw said the square footage of its supermarkets grew by about one per cent, below the industry rate of three per cent. Despite this, the company reported retail sales were up 1.6 per cent and same-store sales were up 1.8 per cent.

Although it's actively working at reducing the square-footage at its Real Canadian Superstores, Loblaw said it will continue to open smaller, more high-end "Inspired" locations like the one inside Toronto's Maple Leaf Gardens

It currently operates 19 of these stores, mostly in Ontario and Quebec, and said they've been well-received by a wider audience than initially thought. The company hasn't committed to how many more locations it will open, but guessed that figure will sit around 50.

The growth in sales can partly be attributed to the company's focus on utilizing one of its "greatest strengths": its loyalty programs, which help it collect important sales data so it can offer tailored discounts to repeat customers. The Shoppers Optimum program has more than 10 million active members, while the PC Plus program has more than six million members.

RBC analyst Irene Nattel said Loblaw delivered better than expected results by "ticking all the boxes investors are looking for."

In addition to Shoppers Drug Mart and its main grocery store business, which includes several other banners, Loblaw also operates the clothing line Joe Fresh, real estate trust Choice Properties and financial services division President's Choice Financial.

Follow @LindaNguyenTO on Twitter.

The Canadian Press


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