Amid recent calls on social media to boycott its grocery stores, Loblaw Cos. Ltd. L-T chief executive officer Per Bank said that higher customer traffic is proving that customers see value in the retailer’s prices.
“They are voting with their feet,” Mr. Bank said on a conference call on Wednesday to discuss Loblaw’s first-quarter results.
Loblaw reported a 9.8-per-cent increase in profit in the first quarter and raised its quarterly dividend paid to shareholders by 15 per cent.
The Brampton, Ont.-based company, which owns stores including Loblaws, No Frills, Real Canadian Superstore and Shoppers Drug Mart, is not the only grocer to face intense scrutiny over food inflation, but particular ire has been directed at Canada’s largest grocer, culminating in a call for boycotts this month.
The rate at which food prices are rising has slowed since reaching double-digit highs early last year. In March, food inflation reached 1.9 per cent compared with the prior year, according to Statistics Canada. Consistent with some previous quarters, Loblaw reported that its internal measures of inflation show that its prices remain below Statistics Canada’s Consumer Price Index for food purchased from stores.
Mr. Bank said the company’s goal is to negotiate better prices with suppliers in order to continue to draw in shoppers.
“We want to take whatever we can negotiate on better terms, and reinvest back into prices to give our customers more value – because that’s what they need – and thereby grow the business,” he said, adding that the aim is to keep gross profit margins relatively stable.
Mr. Bank added that he is hoping for more support from large consumer packaged goods companies for price promotions. He added that CPGs “have money to invest, and many of them are looking for volume.” For example, in February, beverage and snack giant PepsiCo reported a drop in quarterly sales as price hikes it instituted in the past two years pushed some consumers away from its products.
Loblaw is also continuing to open more discount stores, both by converting existing stores to formats such as No Frills and Maxi, and by opening new locations. The company plans to open more than 50 such locations this year. Mr. Bank said that he expects the shift to discount to continue, though at a slower pace, for years to come.
The company reported that traffic to its grocery stores is on the rise, though basket sizes are continuing to shrink as consumers remain discerning about their purchases and buy fewer items during each visit. Loblaw reported that it took market share away from grocery competitors during the quarter.
Same-store sales – an important metric that tracks sales growth not tied to new store openings – grew by 3.4 per cent in the quarter at Loblaw’s grocery stores, and 4 per cent at its drugstores including Shoppers Drug Mart. E-commerce sales grew by 16.1 per cent.
Loblaw reported net earnings available to common shareholders of $459-million or $1.47 per share in the first quarter ended March 23. That compared with net earnings of $418-million or $1.29 in the same period the year before.
The company raised its quarterly dividend to 51.3 cents per share, from 44.6 cents.
Loblaw’s gross profit margins increased, a change the company attributed to improvements in the mix of products sold at its drugstores, and lower “shrink” – an industry term that refers to product loss, such as through theft, or items that expire or are damaged before they can be sold.
Loblaw reported total revenue of $13.6-billion, up 4.5 per cent compared to the same period the prior year.
Also on Wednesday, Mr. Bank said that Loblaw is getting closer to supporting a new code of conduct for the grocery industry, after the company refused to sign the code in recent months, warning that it could contribute to higher prices for consumers. At the same time, Walmart Canada also said it would not sign the code as it stood.
In recent weeks, Loblaw has been engaged in discussions with the industry committee developing the code. “I think the code is beginning to get to a place where I’m starting to become cautiously optimistic,” Mr. Bank said during Wednesday’s call.
Michael Graydon, CEO of industry association Food, Health & Consumer Products of Canada and chairman of the interim board for the code, said the discussions have involved “bringing more clarity to specific provisions,” but declined to provide further details.
“We are working with Loblaws on the code and the discussions have been very productive and I share Mr. Bank’s optimism,” Mr. Graydon wrote in an e-mailed statement, adding that Walmart is also being kept informed about the developments.
Susan Krashinsky Robertson