In the battle to woo grocery customers, Loblaw Cos. Ltd is showing signs of losing ground to its smaller rival Metro Inc.
In the latest quarter, Loblaw shed unit sales while Metro gained business – on a unit basis – even as they both took on discount titan Wal-Mart Canada Corp., which is rapidly beefing up its food aisles. By 2013, the competition will be even more fierce when Target Corp. enters the market with up to 135 stores that it will convert from Zellers.
The retailers are fighting to snag more food “tonnage,” or unit sales, from competitors because there is little or no overall growth in grocery retailing.
“Metro’s tonnage growth has been better than Loblaw’s for at least four or five quarters now,” said retail analyst Brian Yarbrough at Edward Jones in St. Louis.
The pressure on Loblaw to bolster its grocery business was highlighted on Wednesday when it and Metro reported higher quarterly sales – but Metro’s same-store sales (at outlets open a year or more) gained 3.2 per cent compared with an increase of just 1.3 per cent at Loblaw.
The disparity surfaced in a period when the grocers benefited from food price inflation, which analysts estimate rose at roughly 2.5 per cent at each of the retailers. It means Loblaw, the country’s largest grocer, essentially failed to make real-dollar sales gains when the effect of inflation is excluded.
Metro has the advantage of just beginning to compete head-on with Wal-Mart’s supercentres in its key Quebec market, where the discounter only recently began to add full food aisles. (Metro operates in the key markets of Ontario and Quebec while Loblaw operates cross-country.)
At the same time, Loblaw has been bogged down for more than six years with poor systems, which are starting to improve but still require heavy investment to turn around. Loblaw won’t have its new systems running at full capacity and hooked up to all its stores until 2014, Vincente Trius, Loblaw’s new president, said on a conference call on Wednesday.
That’s about a year later than Mr. Yarbrough and other analysts anticipated.
Meanwhile, Loblaw’s “tonnage,” or volume sales, dropped “slightly” in its third quarter, although it is now doing better than earlier this year, said Galen G. Weston, Loblaw’s executive chairman. Customer counts also are improving, he added.
“In the third quarter, Loblaw performed fairly well,” Mr. Weston said, adding that despite the “steady progress,” the company expects the infrastructure investment to have a “negative impact on operating income going forward.”
Mr. Yarbrough said he has never seen a company take so long to get its systems in order. On a brighter note, once it does, it will be able to cash in on the added efficiencies, he said. “It just shows how bad the systems were ... They’ve done a great job – they haven’t had any major hiccups.”
In its third quarter, Loblaw profit rose to $236-million or 84 cents a share from $197-million or 71 cents a year earlier. Revenue grew to $9.7-billion from $9.5-billion. Its latest share profit missed analysts’ estimates by a penny.
Metro, Canada’s No. 3 grocer, said its fourth-quarter profit was shaved as closings and other one-time restructuring costs offset improved revenue. Its profit dropped to $86.1-million or 84 cents a share from $93.4-million or 88 cents a year earlier. Its sales grew to $2.66-billion from $2.56-billion. Metro’s adjusted share profit of 98 cents a share exceeded analysts’ target by 5 cents.Report Typo/Error