TORONTO -- Galen Weston, chairman of Loblaw Cos. here, warned shareholders at the company's annual meeting this month that big-box stores will continue to shake up the Canadian retail market.
While not mentioning Wal-Mart Stores by name, he said a "non-unionized" workforce was "dangerously competitive" and that he was working with his own unionized workers to make sure they were aware of the threat. He warned, however, that Wal-Mart Canada has been increasingly adding groceries to its product mix. In response, Loblaw has been adding more general merchandise and building more discount superstores.
John Lederer, president of Loblaw, said the company is well-positioned to confront the big-box threat after spending $1 billion on renovations and new stores. The company plans to open eight new superstores in Ontario this year. In addition, Loblaw introduced 500 new products last year, pushing further into general merchandise like barbecues, outdoor furniture, digital photo development, and more health and beauty products.
Lederer touted the success of its President's Choice private-label program, which accounted for $1.6 billion in sales last year. Despite the addition of more general merchandise, he said food remains the heart of the company's business. "We've never forgotten that we are, first and foremost, a food merchant," he said.
Separately, restructuring charges took a bite out of Loblaw's net income for the 12-week first quarter ended March 26. Profits dropped 19%, to $113.6 million U.S., or 42 cents per share, compared with results for the year-ago period. Sales rose 7.9%, however, to $4.88 billion. Excluding the restructuring charges, profits would have been 52 cents a share.
Total restructuring charges, which include costs for supply chain improvements, the relocation of some distribution operations, and severance packages, will cost $72 million. A headquarters consolidation will cost another $20 million.
The head office change will save $20 million a year, beginning next year, while supply chain improvements should result in annual savings of $80 million, beginning in three years, the company said.
Analyst Perry Caicco of CIBC World Markets here said the long-term benefits of the restructuring "far outweigh" the short-term pain.
He said first-quarter sales were expected, noting that some cannibalization of sales from its own big-box stores affected the company's performance.