TORONTO (FNS) -- With the sale of its U.S. retail arm last year, Loblaw Cos. here now is poised to reinvest in key domestic markets.
Chairman W. Galen Weston told stockholders at Loblaw's annual meeting that capital from the sale of National Tea Co. -- a subsidiary he called "profitable" but "nonstrategic" -- has armed the voluntary wholesaler and supermarket retailer with a "war chest" of cash for expansion.
Loblaw plans to boost its presence in Ontario, Quebec and the Maritime provinces as a fulcrum for growth, company officials said.
"We are investing heavily in markets where we can clearly excel. In nearly all these markets, we already have strong market-share positions, and there are opportunities to pre-empt competition by building state-of-the-art facilities," Weston said.
Loblaw plans to spend about $300 million in capital this year and to increase its gross square footage by about 8% and net, after closures, about 5% over last year-end. The bulk of the expenditure will be in eastern Canada, primarily for the construction of about two dozen stores, each more than 45,000 square feet in size.
President Richard J. Currie noted that Quebec is earmarked as a growth area, but he did not specify plans. "That we will go to Quebec is inevitable. But it will be in a form and time of our choosing," he said. Loblaw supplies nearly 7,000 stores and operates approximately 400 stores, including about 300 supermarkets. Yet competition from foreign-owned chains has pushed Loblaw to sharpen its marketing skills, Currie said.
"For Loblaw Cos., the reality is that the competition of the last 20 years has helped to make us a better company, whether the competition came from the American-owned Canada Safeway; the German-owned A&P, Dominion and Miracle Mart; or the American influence on Sobeys by Hannaford," he explained.
"Most of all, the American nonunion mass merchandisers like Price Club, Wal-Mart and Costco have added greatly to our merchandising skills as they continue to push into Canada -- a region they think, or thought of, as their happy hunting ground."
Regarding the likelihood of Wal-Mart Supercenters opening in Canada, Currie admitted that they are a "formidable format" but said he does not believe they will be a profitable food concept. "And with Wal-Mart's managerial issues in the United States, supercenters in Canada may not, or should not, be their most pressing issue," he added.
In this year's first quarter, Loblaw's sales volume fell due to the National Tea divestiture, but net earnings climbed 17%. The company's total annual sales in Canada scrape the $10 billion mark, and its pretax profit has risen to $300 million a year, according to Currie.
"Canadian sales will be up 8% to 9%, giving three consecutive years -- 1994, 1995 and 1996 -- of sales at $10 billion," Currie predicted. "President's Choice and No Name sales, at 17% to 18% growth, are and will be at twice the rate of increase of total company sales."
Controlling labor costs is vital to expediting Loblaw's growth plans and maintaining a competitive edge, Currie noted. This year, the company -- which employs 49,300 people, 33,600 of whom are union members -- will negotiate 16 labor agreements affecting 18,000 employees.
"Union work rules and red tape of the 1970s and 1980s must end if we are to continue to pay top wages and guarantee work and also compete in the 1990s with the wage rollback artists and the nonunion American discounters entering our markets," Currie said.
Also at the meeting, stockholders approved a share-split on a three-for-one basis, only the second time in Loblaw's history that shares have been split, said Weston, who owns or controls about 70% of the company's shares. Loblaw shares have appreciated 30% from a year ago, and Weston said he expects the split to further lift the price of shares, which earlier this month was at about $33.40. At last year's annual meeting, shares sold for $25.75. Currie predicted earnings of about $2.15 a share this year.