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Loblaw Plans Steeper Discounts Amid Canadian Food Price War

Published on Jul 27 2017 11:30 AM in Retail tagged: Canada / Canadian retail / Loblaw

Loblaw Plans Steeper Discounts Amid Canadian Food Price War

Canada’s food price war shows no sign of abating.

The nation’s largest grocer, Loblaw, said Wednesday it plans steeper discounts, seeking to lure shoppers as profits are under threat from health-care reforms and a minimum-wage hike in some provinces.

“We plan to intensify our focus on cost reductions in this highly competitive market given incremental external pressures on our industry,” Loblaw CEO Galen Weston said in a statement. Wage increases in Ontario and Alberta, and a movement by Quebec’s government to tamp down drug prices, will hurt earnings after this year, he said.

Shares of Loblaw fell as much as 3.9% to C$68.73. They were down 3.5% at 10.18 am in Toronto, the third-biggest decline among 248 stocks on the S&P/TSX Composite Index.

Increased Competition

Loblaw and rivals including Walmart and Metro have used promotions and discounts to get customers to buy more goods and cushion the impact of a prolonged bout of food deflation. Canada’s central bank this month said the increased competition may have in turn pushed prices down more, though it expects the compounding effect to dissipate early next year.

Same-store food sales were little changed in the second quarter from a year earlier, leaving out the effect of a later Easter holiday, the Brampton, Ontario-based company said. Including Easter, earnings and sales for the quarter beat analysts’ estimates, also aided by growth at Loblaw’s pharmacy chain.

Earnings rose to C$1.11 per share, excluding some items. That beat the C$1.10 average forecast of analysts. Revenue increased 3.2% to C$11.1 billion ($8.9 billion), compared with an estimate of C$11 billion.

Loblaw said it expects an additional C$190 million in labor expenses in 2018 and is assessing how to mitigate that and the impact of new health-care reform in Quebec.

It now also faces a new threat after Amazon last month agreed to buy Whole Foods Market. A heftier Amazon could experiment with food-delivery services in a country where grocers have preferred a “click-and-collect” approach, where clients order online and pick up purchases themselves at the store. Loblaw shares have lost 5.3% since the June 16 acquisition announcement.

News by Bloomberg, edited by ESM. Click subscribe to sign up to ESM: The European Supermarket Magazine.

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