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May 4, 2022

Canadian shoppers shift to discount stores, No Name brand amid high inflation: Loblaw

Food sales benefit from more people eating at home

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Canada's big three grocers say rising food prices are shaping shopping habits, with Loblaw Companies Ltd. the latest to offer insight into how people are saving money on their grocery bill amid soaring inflation.

Consumers are shopping for groceries more often, buying less with each visit and shifting to value-oriented stores as pandemic restrictions loosen and the cost of food increases, 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, posted strong growth in the quarter while demand for its in-house products surged. 

Sales of Loblaw's No Name private label brand, with its distinctive yellow and black packaging, reached an all-time high, Loblaw chairman and president Galen G. Weston said.

"This is an indication of the Canadian consumers' steadily increasing focus on value," he said during a conference call.

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

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

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

Canada's food inflation rate hit 8.7 per cent in March, Statistics Canada said last month. 

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

Loblaw chief financial officer Richard Dufresne said those costs "pale in comparison to the cost increases coming on goods for resale."

Weston said the retailer now has a "central procurement team" to consolidate its buying and negotiations with vendors.

The team "evaluates the impact of cost inflation on the cost of a good and it allows us to negotiate with our vendor base," he said, adding that the company is careful about only accepting "real, justifiable cost increases."

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

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

Loblaw's drugstores, which include Shoppers Drug Mart and Pharmaprix, recorded strong front-store and prescription sales. 

"As consumer behaviour normalized, customers returned to our Shoppers beauty counters, generating excellent results in our higher-margin categories like cosmetics," Weston said. 

"Cough and cold has strengthened significantly, prescription counts increased and pharmacy services continued their multi-year expansion."

Same-store sales at the company's pharmacies grew 5.2 per cent, including prescription sales up 6.8 per cent and front store sales up 3.6 per cent. 

Food retail same-store sales rose 2.1 per cent, benefiting from higher than normal eat-at-home levels.

Revenue for the quarter totalled $12.26 billion, up from $11.87 billion in the same quarter last year.

Loblaw reported its profit available to common shareholders totalled $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 will pay a quarterly dividend of 40.5 cents per share, up from 36.5 cents per share.

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

Irene Nattel, an analyst with RBC Dominion Securities Inc., said in a client note Loblaw posted another quarter of strong and better-than-expected results, underscoring the company's "favourable momentum shift."