Loblaw Buys T&T Supermarkets

JON SPRINGER

TORONTO — In a move that would provide a vehicle to reach growing Asian populations and improve merchandising and sourcing expertise for its own stores, Loblaw Cos. agreed to acquire Canada's premier Asian supermarket chain, T&T Supermarkets, for about $207 million (U.S.).

T&T, based in Richmond, British Columbia, operates 17 Asian specialty grocery stores across Canada lauded for their unique selection and expansive fresh and prepared-food departments. Observers told SN they envision Loblaw growing the T&T brand through new stores while also learning about the products and sources to serve what Loblaw officials called Canada's largest growing ethnic group.

“The real value to Loblaw is that it gives them a really good opportunity to learn about an Asian customer. That is obviously important now that Wal-Mart has begun opening supercenters in the West, which has a very large Asian influence,” Marty Weintraub, vice president of Karabus Management, a Toronto-based consulting firm, told SN. “And learning how those customers shop, and what they like to buy from an assortment standpoint will be helpful to Loblaw as it figures out its own assortments.”

“We've got much more to learn from them than they can learn from us,” Allen Leighton, president and deputy chairman of Loblaw, said during a conference call discussing Loblaw's quarterly earnings.

Kam Choi, chief financial officer of T&T, told SN last week that Loblaw would operate T&T “as a mother ship,” supporting the company without making changes to its executive team or its format for the foreseeable future.

Perry Caicco, an analyst for CIBC World Markets, Toronto, called maintaining the unique culture of T&T “critical” to preserving that chain's large volumes and productive stores. He added that doing so would provide Loblaw with a format it could add to its markets without cannibalizing its existing stores.

“T&T's customers, both Asian and non-Asian, will be watching carefully for changes in its assortment,” Caicco said in a report. “At the first sign of [President's Choice sauce] ‘Memories of Szechwan,’ it's over.”

Loblaw made the announcement it acquired T&T at the same time it revealed that earnings grew on slow sales growth during the second quarter. For the period that ended June 20, earnings climbed 37.9% to $177.5 million on a 2.8% gain in sales to $6.7 billion (U.S.). Comparable-store sales were up 1.6%.

According to Caicco, the figures reflected benefits from inflation and easing price competition between retailers, but Loblaw officials maintained the same cautious posture they first struck late last year, saying they were expecting sales would slow and deflation could set in during the second half of the year.

Leighton said Loblaw is prepared to invest aggressively in margins and promotions during the second half of the year in addition to stepping up investments in store renovations and information technology. The company prepared for these expenses by lowering its own costs during the first half of the year, he said.

Loblaw, which previously expected to spend $689 million in capital expenditures during the fiscal year, said it would bump up its spending to about $920 million.

Caicco of CIBC said that the company was “crying wolf” in citing a need for promotional investments, suggesting that competitive activity in Canada this year “is about as intense as a church-basement bingo.”