BRAMPTON, ON - Loblaw reported strong sales numbers for its second quarter following the company’s recent acquisition of Shoppers Drug Mart as well as a shift in its focus. In order to fend off increasing competition from other retailers like Wal-Mart and Sobeys, Loblaw is increasingly shifting its focus to smaller stores and bigger produce aisles. President and Executive Chairman Galen G. Weston called the quarter the next step in a “new chapter for Loblaw.”
“While the industry backdrop continues to be challenging, this quarter we advanced our business both financially and operationally, including delivering strong same-store sales growth, as well as solid operational performance...For the balance of the year, we expect to continue to improve our competitive positioning, advance our businesses and realize material synergies related to the transaction,” he said in Loblaw's financial report.
Two trends affecting the Canadian retailer market are an increasing concentration of customers living in crowded city centers and an appreciation for the informal, local experience smaller stores offer. Weston told The Globe and Mail, “We will be reducing the size of all our stores” in response to this changing market.
The increase in the size of produce aisles is also a reflection of this. Weston admitted to as much in a conference call to investors, saying that the consumer drive towards fresh produce was “a more sustained shift in consumer preference...they're just buying more fresh food.”
In response, Loblaw has increased the store space dedicated to fresh produce by as much as 10%, and according to spokesman Kevin Groh, its long term goal is to grow sales numbers for fresh foods at twice the rate of packaged varieties.
Fresh food sales have helped Loblaw sustain strong profit margins even as the cost of food prices rose over 2.9% over the previous June with carrots and onions alone increasing by 10% and 18% respectively, according to The Globe and Mail. Many retailers have been forced to bare the brunt of much of these costs as passing the entirety on to consumers is difficult. While this is still true with fresh produce, Claudia Schmidt, a senior research associate at the George Morris Agricultural Research Centre, noted that consumers aren't as price sensitive to fruits and vegetables. This means that by expanding fresh produce sections and pushing fruit and vegetables sales, Loblaw is converting a large portion of their total sales numbers into goods that are easier to adjust to reflect market prices.
In general, Loblaw's financial report carried good news. While they did post a net-loss of $456 million or $1.13 per share this quarter, according to the Edmonton Journal, much of these losses can be attributed to the one-time costs associated with Shoppers Drug Mart. Excluding these one-time costs reveals a profit of $201 million, or 75 cents per share. In comparison, analysts had only expected a profit of 67 cents per share.
Congratulations on the strong quarter Loblaw!
