Loblaw continues pivot to discount as shoppers demand value
Loblaw Cos. Ltd. continues to lean into discount stores and private label products as consumers relentlessly hunt for value.
"More than ever, we've seen Canadians prioritize value," said chief executive Per Bank on the company's fourth-quarter earnings call on Wednesday.
He said promotional pickup is still high, while its own brands, such as President’s Choice and No Name products — which can be more economical compared to bigger brands — outperformed national brands in the fourth quarter.
Even in produce, Bank said consumers are going for the cheaper alternatives. For example, sales of organic berries were down by double digits; meanwhile, consumers are buying conventional berries because they are cheaper.
The grocer opened 48 No Frills and Maxi stores last year and it seems to be "working very well," Bank told analysts.
"We know that affordability is so important for many households, and that's why we are expanding our hard-discount network," Bank said.
READ: Even full-time workers struggle to afford food in Canada: Study
Chief financial officer Richard Dufresne said plans for this year remain the same as last year.
"New store investment will be similar to last year, with an increase in Shoppers Drug Mart stores," he said.
Earlier this week, the grocery and drugstore retailer announced its plans to spend $2.4 billion — part of its five-year plan to invest $10 billion — on opening 70 new storefronts, renovating 191 stores and working on its automated distribution centre in Caledon, Ont.
The focus, however, is on opening slightly more Shoppers Drug Mart and Pharmaprix pharmacies and care clinics this year, compared with its planned discount banners. Loblaw said it is planning to set up 34 new pharmacies and 31 new No Frills and Maxi stores.
Last year, the company opened 77 total new stores across all banners.
The company reported Wednesday it earned a profit available to common shareholders of $656 million or 55 cents per diluted share for the 13-week period ended Jan. 3. The profit was up from $462 million or 38 cents per diluted share for its fourth quarter of 2024, which was just 12 weeks.
Revenue for the quarter totalled $16.38 billion, up from $14.73 billion, helped by the extra week. On a 12-week comparable basis, Loblaw said revenue rose 3.5 per cent.
Food retail same-store sales increased by 1.5 per cent, while drug retail same-store sales rose 3.9 per cent, with pharmacy and health-care services same-store sales growth of 5.6 per cent and 2.2 per cent in front-store same-store sales growth.
On an adjusted basis, Loblaw says it earned 67 cents per diluted share in its latest quarter, up from 55 cents per diluted share a year earlier.
Fortinos drove growth among the company's conventional, full-service banners — partly driven by prepared foods at the stores.
Bank said prepared foods are "something that we're doubling down on at the moment," as customers increasingly look for meal solutions.
READ: Consumers crave more from home-meal replacements
In its outlook, Loblaw said it expects its retail business to grow earnings faster than sales, while its adjusted net earnings per common share are expected to post growth in the high single-digits.
