Loblaw says strong demand boosting grocery sales as eat-at-home trend continues; inflation lifts prices - The Globe and Mail

A Loblaw store in Ottawa, on Feb. 14, 2019.CHRIS WATTIE/Reuters

Loblaw Cos. Ltd. L-T made news this week, for a dispute with a major product supplier over a price hike on potato chips. But while the retailer is among many in the sector pushing back against such price increases, Loblaw is still passing on the impact of inflation to shoppers. And Canadians are beginning to change their buying behaviours.

The Toronto-based retailer reported on Thursday that its internal food inflation was slightly higher than the 4.8-per-cent increase in the Consumer Price Index in the fourth quarter.

“Our shelf price is the tail end of a chain of costs: shipping containers, fuel, farming, ingredients, labour, weather, to name a few,” Loblaw chief financial officer Richard Dufresne said on a conference call Thursday to discuss the company’s financial results.

Rising food prices are affecting shoppers’ decisions. At the height of pandemic-related lockdowns in the past two years, customers flocked to conventional grocery stores, limiting their outings by seeking locations for one-stop shopping. But in the past six weeks Loblaw-owned discount stores such as No Frills have seen a surge in traffic. And a recent push to promote the retailer’s own No Name discount brand in stores has led to an increase in private-label sales.

“[Customers] are becoming increasingly price-sensitive. There’s no question about that,” Loblaw chairman and president Galen G. Weston said on the call Thursday. “And we are seeing it most notably in the accelerating performance of our discount business.”

Discount stores represent 60 per cent of Loblaw’s store network, which includes Loblaws, No Frills, Provigo, Valu-Mart and Real Canadian Superstore.

Earlier this week, the price-increase dispute between Loblaw and Frito-Lay came to light, after the PepsiCo-owned snack food vendor stopped shipping potato chips to the grocery stores. Grocery retailers across the sector have reported that product suppliers have been requesting price increases since the summer.

“Our job every day is to ensure that any proposed cost increases are appropriate, we keep items on the shelf, and deliver the best value to our customers,” Mr. Dufresne said.

Mr. Dufresne declined to comment on specific discussions with suppliers when asked about the reports of the dispute. But he added that the company employs a team that deconstructs the component costs of every item on the shelf – including costs of raw ingredients, packaging, labour and shipping – in order to analyze requests for price hikes. Because of the number of product suppliers that Loblaw deals with, the retailer has visibility into such costs, he said.

On Thursday, Loblaw reported that fourth-quarter grocery sales kept pace with the strong demand seen in the prior year, as Canadians continued to eat at home and inflation pushed prices up. Revenue grew to $12.8-billion in the 12 weeks ended Jan. 1, 2022, up 2.8 per cent compared to the same period the prior year. (This growth was reported on a comparable 12-week basis; the fourth quarter of 2020 included an extra week. Compared to the full 13-week period, revenue fell by 4 per cent.)

Grocery same-store sales – an important metric that tracks sales growth excluding the impact of new store openings – rose by 1.1 per cent, keeping pace with a period of strong demand in 2020 when same-store sales jumped by 8.6 per cent.

While demand for groceries remained elevated – particularly as the Omicron wave of COVID-19 led to renewed restrictions on restaurants in some provinces late last year – the company reported that eat-at-home trends were slightly lower than the same period in 2020 when the pandemic fuelled unusual levels of sales growth.

At Shoppers Drug Mart and other drugstores, same-store sales grew by 7.9 per cent in the quarter. Loblaw benefited from pharmacy services, which more than doubled in the quarter as the stores continued to provide COVID-19 vaccines and testing. Drugstores also experienced improved non-pharmacy sales, such as in cosmetics, as pandemic-related restrictions eased and shoppers prepared to spend more time out of their homes.

E-commerce demand softened slightly in the quarter, dropping 8.4 per cent compared to the unusual surge of 158 per cent at the same time the prior year. For the full year, Loblaw’s online sales grew by 13.9 per cent to $3.1-billion.

The company continued to benefit from lower costs related to COVID-19, which amounted to roughly $8-million in the quarter compared to $42-million in the prior year.

Loblaw reported that fourth-quarter net earnings grew to $719-million or $2.23 a share, compared to $394-million or 98 cents a share in the 13-week period the prior year. The earnings included a one-time contribution of $301-million recorded in the quarter, resulting from a favourable decision by the Supreme Court of Canada in a tax matter.

For the full year ended Jan. 1, 2022, Loblaw reported that net earnings grew to nearly $2-billion or $5.49 a share, compared to $1.2-billion or $3.08 a share in the prior year, which included the additional week. Revenue grew by 0.9 per cent to $53.2-billion; on a comparable 52-week basis, revenue grew by 2.6 per cent in 2021.

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Loblaw says strong demand boosting grocery sales as eat-at-home trend continues; inflation lifts prices - The Globe and Mail
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