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Loblaw’s expansion of discount stores paying off as consumers remain frugal: expert

Loblaw's stock continues to move high despite ongoing backlash Sylvain Charlebois, director of Agri-Food Analytics Lab at Dalhousie University, joins BNN Bloomberg to discuss Loblaw's ongoing backlash while the Canadian grocer's stock continues to move higher.

Loblaw is outperforming broader equity markets so far this year, despite a spending slowdown by many Canadian consumers, and an expert says the grocer’s expansion of its discount stores is driving the recent success.

“Right now, you're still looking at a very frugal consumer,” Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University, told BNN Bloomberg is a Monday television interview.

“Consumers are very careful with how they spend their money… so I think grocers are still very careful. If you look at Loblaw, for example, they've made many conversions to discount stores in the last 12 months.”

Loblaw, Canada’s largest grocer, operates discount stores such as No Frills and Maxi, which have become more popular amongst shoppers in recent years as the cost of groceries rose alongside inflation.

These brands, in addition to the company’s other conventional and high-end offerings such as Loblaws, Fortinos and Real Canadian Superstore, make up the grocery giant’s “complete” network of stores, Charlebois said.

“Some grocers have more options than others, and Loblaw, they have lots of options, which is why their stock is up 30 per cent in the last 12 months,” he said.

“We often think of Canada as this one homogenous market, but there are variations across the country, and I would say Loblaw’s network is pretty complete.”

Ottawa intervention

Loblaw, along with Canada’s other major grocery chains, came under fire late last year from federal politicians who questioned CEOs about persistently high grocery prices and what they plan to do to fix them.

Charlebois said Ottawa’s focus on high grocery prices mirrors the frustration consumers have felt for some time, but he added that many Canadians overestimate how much prices have risen in recent years.

He said his lab recently conducted a study of more than 8,000 Canadians, asking them how much they thought grocery prices have gone up in the last four years.

“The average answer was 78 per cent… that’s what they thought. The reality is 21 per cent since March 2020, when the pandemic started,” Charlebois said, “… that’s the gap.”

“That's why there's a lot of politics right now because in Ottawa, they're bringing in CEOs asking them what's going on… 21 per cent is still a lot, let's be honest, but still it's not 78 per cent.”

Charlebois said a likely explanation for the gap between the real and perceived food price increases is that high costs pinch consumers in other areas – mainly shelter.

“A lot of people out there are struggling, and they do feel that food prices are out of reach,” he said.

“That's probably due to the fact that the cost of living has actually increased pressures in their lives, and so when they go to the grocery store, they have less to spend on.”

'Our strategies are working'

Loblaw says it intends to continue growing its footprint in the discount grocer space, with the construction of 40 new discount stores slated to begin this year.

Last month, the company reported a rise in earnings and sales in the fourth quarter of 2023 and for the full financial year, thanks to strong performance from No Frills and its other discount banners.

In a conference call on Feb. 22, the grocer’s chief financial officer said Loblaw not only gained market share in the discount sector last year, but also held its own against competitors in the broader grocery market.

"We're very happy with what's happening with our market share performance, specifically discount,” Richard Dufresne said, “that tells us that our strategies are working.”

With files from The Canadian Press