Loblaw, Metro drive gains as food turns deflationary in Canada

Loblaw and Metro on Wednesday said they're facing a competitive but rational environment as grocers in Canada prepare to deal with the grips of price deflation arriving over recent weeks.

The retailers separately reported quarterly results Wednesday, with Brampton, Ontario-based Loblaw reporting third-quarter figures for the period ended Oct. 8, while Montreal-based retailer Metro Inc. reported results for its fiscal fourth quarter, which ended Sept. 24. Both said prices dropped over the course of the quarter, triggered in part by cycling high levels of inflation in the year-ago period, and both reported a continuing flight among consumers to discount alternatives to their conventional stores.

Loblaw was able to pay for its strategic price investments by improvements in shrink, and lower general corporate expenses as well as strong sales at its Shoppers Drug Mart chain, reporting stable gross margins.

"During the quarter we saw the grocery market shift from an inflationary market to a deflationary one. This shift is consistent with cycling the highest inflationary periods of last year," Galen Weston, executive chairman and president of Loblaw, said in a conference call. "In keeping with the strategy outlined in previous calls we made measured, targeted investments to drive volume and it has worked. Customers responded to our lower prices and we continue to grow the top line."

Loblaw's overall sales for the quarter grew by 1.4% to $10.5 billion (U.S.), while food retail comps grew by 1.4% during the quarter.

LaFleche said Metro used promotions so as to tell customers, "here are cuts of meat that were less affordable a year ago and now are more affordable, so we can put them on the flier and put them on lower regular prices, and actually sell more of them than we did last year."

Metro saw sales improve by 3.4% to $2.2 billion (U.S.), with same-store sales improving by 2.8%.