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As COVID restrictions ease, Loblaw sees a return to discount

Despite a shaky quarter, president Sarah Davis says the company has confidence in the strength of its discount division

While Canadians favoured one-stop shopping at conventional formats at the start of the pandemic, they're making the return to discount as restrictions gradually ease across the country, according to Loblaw president Sarah Davis.

"Since the onset of COVID, discount stores have been challenged by a swing in shopping habits towards full shop conventional stores, customers are making that choice even at a cost," said Davis during a call with analysts to discuss the grocer's second quarter results. But discount shoppers will return and Loblaw will be ready, said Davis.

Loblaw's revenue rose 7.4% to nearly $12 billion, from $11.1 billion in the second quarter of 2019. Davis said the results were "substantial, but uneven" with inconsistent growth in food and negative pressure on the company's drug business.

"There's no question that our usual strengths in these areas were dampened by COVID," said Davis.

Loblaw's market division delivered strong same-store sales growth of 18.8%, while sales at its discount division grew 4.9% during the quarter, which ended June 13.

Though there was an overall sales lag in non-food categories--"an important part of our larger format discount mix" said Davis--the company still had confidence in the strength of its discount division, which accounts for approximately 60% of its supermarket business.

"We are already seeing the start of a return to discount. And we expect that to kick in if the economy tightens in any meaningful way. Our competitors are investing in the discount sector, and we intend to maintain our share," said Davis.

Earlier in the week, Walmart announced it would invest $3.5 billion over the next five years to improve service in stores and online, while Sobeys' parent Empire committed $2.1 billion to improve store productivity, scale up e-commerce, continue the FreshCo expansion in Western Canada, while also opening eight Farm Boy locations in Ontario.

When asked if Loblaw would increase investments in its discount footprint in response to Walmart's announcement, Davis said "we actually feel that we're in fairly good shape in terms of our renovation cycle." Loblaw currently spends approximately $1.1 billion each year, she said, on renovations and e-commerce expansion, she said.





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