Canadian shoppers shift to discount stores, No Name brand amid high inflation: Loblaw

Food sales benefit from more people eating at home Loblaw Companies Ltd. reported its 1st-quarter profit rose nearly 40% compared with a year ago. BNN Bloomberg's Paul Bagnell reports.

Canada's biggest food retailer says people are shopping for groceries more often, buying less with each visit and shifting to discount stores as pandemic restrictions loosen and inflation soars.

Loblaw Companies Ltd. highlighted consumers' growing emphasis on value as it raised its quarterly dividend and reported its first-quarter profit rose nearly 40 per cent compared with a year ago.

The grocery and drugstore retailer said Wednesday its discount division, which includes No Frills and Maxi, posted strong growth in the quarter -- a period marked by the highest annual inflation rate in Canada in more than 30 years.

Its conventional grocery stores, which include Zehrs, Provigo and Fortinos, were impacted by the shift to discount, the company said.

Shoppers also increasingly opted for the company's house brands, or private labels, in a bid to save money on groceries.

"After President's Choice, our No Name brand is the second largest (private label brand) in the country," Loblaw chairman and president Galen G. Weston said during a conference call.

"Through the promise of excellent products at incredibly low prices, sales are at all-time highs," he said. "This is an indication of the Canadian consumers' steadily increasing focus on value."

During the quarter ended March 26, Loblaw's food business grappled with ongoing global supply chain challenges and cost increases, including for fuel, shipping, ingredients and packaging, he said.

Still, the company reported its profit available to common shareholders totalled $437 million or $1.30 per diluted share for the 12-week period compared with $313 million or 90 cents per diluted share a year earlier.

Loblaw said it will pay a quarterly dividend of 40.5 cents per share, up from 36.5 cents per share.

The company's drug business stood out in the quarter and drove a significant portion of sales and gross margin growth, Weston said.

Loblaw's drugstores, which include Shoppers Drug Mart and Pharmaprix, recorded strong front-store and prescription sales.

"As consumer behaviour normalized, customers returned to our Shoppers beauty counters, generating excellent results in our higher-margin categories like cosmetics," he said.

"Cough and cold has strengthened significantly, prescription counts increased and pharmacy services continued their multi-year expansion."

Drug retail same-store sales grew 5.2 per cent, with pharmacy same-store sales were up 6.8 per cent and front store same-store sales increased 3.6 per cent.

Food retail same-store sales rose 2.1 per cent, benefiting from higher than normal eat-at-home levels.

Revenue for the quarter totalled $12.26 billion, up from $11.87 billion in the same quarter last year.

On an adjusted basis, Loblaw said it earned $1.36 per diluted share, up from an adjusted profit of $1.13 per diluted share a year ago.

Irene Nattel, an analyst with RBC Dominion Securities Inc., said in a client note Loblaw posted another quarter of strong and better-than-expected results, underscoring the company's "favourable momentum shift."

This report by The Canadian Press was first published May 4, 2022.