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Thursday, May 4, 2017

By Peter Diekmeyer

Loblaw Companies Ltd. reported a slight increase in revenues (0.2 per cent) but a significant 2.1 per cent decline in same-store sales in Wednesday’s Q1 analysts’ call. In contrast, last week rival grocer Metro Inc. reported a 0.3 per cent increase in same-store sales.

 

The competitive environment is intense, said Weston, although deflationary pressures should moderate somewhat. "The notion of a shift into a steady inflationary environment is going to be offset by what we see as a continued level of competitive intensity," Weston said.

 

Despite the challenges, Loblaw CEO Galen G. Weston noted several bright spots, which included an increase in tonnage growth, a continued push into its Click & Collect program and enhanced fresh offerings at its Shoppers Drug Mart (SDM) locations. 

Shoppers Drug Mart’s strong performance was driven by food and other front store sales, which were up 3.6 per cent during the quarter. Key to that success has been the addition of fresh offerings, which are now included in 25 per cent of SDM’s basket ring.

“Our enhanced food proposition has been performing really well, specifically within urban markets in Toronto. There is a lot of foot traffic walking past them,” Weston said, with customers stopping in to pickup dinner items on their way home, or to make a fill-in trip. “It’s been performing really, really well in the stores where we have deployed it, specifically in the urban markets in Toronto. We are continuously looking for incremental locations to add to that proposition.”

SDM has 34 stores with enhanced fresh food sections and it has plans to open 11 more Vancouver locations (in addition to the first one opened in April) in the near term. However, Weston noted that fresh products are unlikely to appear at SDM’s suburban stores anytime soon.

“When you move out to the suburbs, the trade-off of going to a small store with less broad offer by driving five minutes, versus driving seven minutes to a bigger supermarket with the full weekly shop available to you, is ultimately what we are struggling with,” Weston said.

Loblaw also announced that implementation of its Click & Collect, Internet service had climbed to 128 stores by the quarter’s end. Loblaw does not offer home delivery of food purchases.

Weston cited SDM’s wide cross-country network, which has the vast majority of Canadians within a five-minute drive of a Shoppers outlet, as making Internet offerings less of a priority for Loblaw than for competitors that have smaller distribution networks.

He also confirmed that Loblaw’s average store size has been getting smaller across the board. That includes big box outlets, which at one time were generally larger than 100,000 square feet and which are now regularly being built in the 80,000-90,000 square foot range.

BMO Capital Markets’ analyst, Peter Sklar, in a note stated that, “We would describe Loblaw’s first quarter as positive, as it was moderately better than expected. We attribute the better-than-expected results to strong grocery performance, with slightly better than expected deflation.”

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