Loblaw lays off 500 office workers in cost-cutting drive

VANCOUVER -- Loblaw Companies Ltd. is laying off 500 of its office workers, but the company says it still expects to create more jobs than it eliminates this year.

"Today is a very difficult day," wrote president Sarah Davis in a memo to employees informing them about the job cuts.

Some of the laid off employees were told Monday and many of the positions will be eliminated immediately, she said.

The 500 jobs come from all levels of store-support offices, she said, including various executives.

"Our business is at an inflection point, with growing pressures -- from new costs and new competition -- and with many opportunities to grow and evolve," Davis said, adding the company remains committed to reducing costs and running efficiently.

Loblaw (TSX:L) is making major investments in omni-channel, financial services and other growing areas and expects to create hundreds of near-term jobs and be a "considerable net-job-creator this year," she said.

The decision comes after Metro Inc. (TSX:MRU) announced last week it would eliminate about 280 jobs starting in 2021 as the grocery-store chain modernizes and automates its distribution network. Metro said the choice is unrelated to its efforts to offset added costs from Ontario's rising minimum wage.

Grocers and other retailers have expressed concerns over rising minimum wages in some Canadian provinces.

Loblaw spokesman Kevin Groh said the grocery industry faces a variety of pressures and the announced job cuts don't relate to any single one, including rising minimum wage.

BMO Capital Markets analyst Peter Sklar, however, said in a note that "we believe the primary purpose of the layoffs is to mitigate the impact of the upcoming increases in the Ontario minimum wage."

The first major increase takes place in the new year when Ontario's minimum wage rises from $11.60 per hour to $14.

Sklar estimates the minimum wage increase will have a $150 million impact on a pre-tax basis on Loblaw next year.

The announced layoffs could save the company $75 million a year on a pre-tax basis, Sklar said. Between those savings and passing on the cost to consumer through price increases, he said "we believe Loblaw will largely be able to mitigate the impact of the increase."