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Loblaw: Consumer flight to discount nicks Q1 sales

Loblaw: Consumer flight to discount nicks Q1 sales

A consumer shift to discount food shopping caught Loblaw Cos. by surprise and led in part to what officials called "slightly disappointing" food retail sales growth in the fiscal first quarter.

Galen Weston, Loblaw's executive chairman, in a conference call Wednesday said food inflation was triggering customers to switch from conventional to discount formats "and while that was happening, our promotional program was not as sharp as it needed to be specifically in our hard discount formats."

Weston explained that Loblaw's No Frills discount chain was dialing back against strong promotions in last year's first quarter "while the rest of the market was pushing very, very hard in that category," which he said was sensitive to swings in promotional activity.

He predicted however that the inflation that sparked the fight to discount would be short lived as he expects prices would come down as the Canadian dollar gains strength.

Overall Loblaw said food retail sales in the quarter improved by 2%. Food comps improved by 2.6%, aided by the Easter holiday falling in the first quarter this year. Drugstore sales helped overall revenues gain by 3.3% to $10.4 billion (Cdn.) Synergies associated with the integration of Shopper Drug Mart drove earnings growth of +34.2% in the quarter.

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