Loblaw Cos. Ltd. posted higher sales and wider year-over-year quarterly profit margins in the third quarter, driven by growing traffic and spending at its supermarket and discount stores.
The Canadian retail giant saw sales reach $19.08 billion in the 16 weeks ended Oct. 4, up 4.5 per cent from a year earlier. Its retail gross profit margin climbed to 31.13 per cent, from 30.90 per cent in the same period last year.
Loblaw CEO Per Bank said on Wednesday’s earnings call that its hard discount banners drove the majority of its growth and the company aims to open more discount stores to strengthen its position “in what is a long-term consumer trend toward value.”
The results came as Canadians continue to feel the pinch at the grocery store, paying four per cent more for food in September than a year ago. Food inflation edged up from 3.4 per cent in August, even as experts had expected downward pressure on prices after the federal government ended 25 per cent counter-tariffs on U.S. imports.
“The removal of the federal government’s counter-tariffs on U.S. imports, which are expected to be fully realized in the coming weeks as retailers sell through inventory, has helped moderate food inflation,” said Loblaw in its October inflation report released on Oct. 29.
Shoppers seeking bargains have propelled Loblaw’s discount banners, including No Frills and Maxi, past conventional stores in the third quarter.
Loblaw’s same-store sales in grocery stores — tracking growth at locations open at least a year — increased two per cent.
The retailer added 19 Maxi and No Frills stores this quarter, staying on track with its full-year plan to open approximately 76 new stores and 100 new pharmacy clinics.
Loblaw said that store traffic and customer spending both rose in the third quarter, helping both its supermarket and discount chains outpace competitors in market share growth during the quarter.
With total food sales revenue up 4.8 per cent in the third quarter, Loblaw maintained that the growth was driven by higher volumes rather than rising prices.
Loblaw chief financial officer Richard Dufresne told analysts on Wednesday that the company’s internal food inflation was below three per cent, adding that Canadian shoppers continue to find value in its stores. The retailer did not respond to the Star’s request for comment on why its inflation rate differs from Statistics Canada’s food inflation data.
“We’ve been gaining significant tonnage growth. We’re on our way to deliver the best market share we’ve ever had on top of the best market share we had last year,” said Dufresne.
Michael von Massow, a food economist at the University of Guelph, said Loblaw’s focus on its discount stores aligns with a broader industry trend, as consumers are now focused on getting value for their money.
“It’s important to remember that cheaper products don’t necessarily mean less margin,” Massow said, adding that there’s less variety of products and fewer staff in discount stores, so their costs are lower.
Massow added that while all grocers are expanding their discount footprints, Loblaw’s advantage lies in its size of brand portfolio and its broader network of locations.
“If people are looking for discount options, it’s easier to find a Loblaw one than it is to find some of the other ones,” he said.
