Loblaw focuses on stores as part of $2B capital investment

Loblaw Cos., Canada’s largest food and drug retailer, aims to invest more than $2 billion  (Canadian) into the nation’s economy this year, including brick-and-mortar store development.

Brampton, Ontario-based Loblaw said Friday that it plans to open 38 new and/or relocated supermarkets in 2023 as well as remodel or convert almost 600 other locations.

Overall, the stepped-up investments stand to create more than 6,000 new jobs in retail, supply chain, technology and construction, reported Loblaw, which through its corporate and independent operations already is Canada’s largest private-sector employer, with about 220,000 workers.

Highlights of the retailer’s planned capital outlays include the openings of new discount supermarkets in underserved communities and more pharmacist-led health clinics, hundreds of carbon-reduction initiatives companywide, and continued development of a modern distribution center in the greater Toronto area.

“For decades, Loblaw has made significant investments in the Canadian economy, creating jobs and opportunities in our company and others,” Loblaw Cos. President and Chairman Galen Weston said in a statement. “By growing and innovating, we are advancing the priorities that matter to customers: outstanding shopping experiences, affordable options, and support for their health and wellness. This investment lives up to our purpose of helping Canadians live life well.”

Loblaw noted that, over the past five years, digital and technology innovation have driven its capital expenditures. But this year, the company is shifting focus to its core retail experience, expanding its presence in communities, upgrading its supply chain, and broadening food and health care access.

Discount formats like No Frills will see an expanded presence as more conventional grocery store locations are converted, Loblaw said. / Photo: Shutterstock

A key ongoing initiative has been the conversion of conventional grocery stores to discount formats, such as No Frills, as Canadians look to stretch their food dollars amid price inflation.

“Going forward, in 2023, we plan to convert over 20 market stores to discount and plan to open some 30 new food and drug stores,” Loblaw Chief Financial Officer Richard Dufresne said in a Feb. 23 conference call on fiscal 2022 results. “Though discount continues to outperform conventional grocery, our market banners are also delivering strong results. Having the right customer offer in all of our stores remains a key focus.”

Dufresne said in the call that Loblaw expects the building for the greater Toronto distribution center to be completed by the end of 2023. “Automation will start to be installed at the beginning of next year and should take about a year to get finished,” he explained. “So we expect our new automated center to begin operation at the end of 2025 or early 2026. And the way you need to look at this investment is an opportunity cost. The automation is way more productive, so it allows us to significantly increase the throughput. And that's how we derive our returns from such projects.”

In the 2022 fiscal year, Loblaw’s retail sales came in at $55.49 billion (Canadian), up 6.2% year over year. Full-year food retail sales rose 5.1% to $39.4 billion, including same-store sales growth of 4.7%. Drug retail sales via the Shoppers Drug Mart unit increased 8.8% to $16.09 billion, with comp-store sales up 6.9%.

Dufresne projects Loblaw’s total capital spending at about $2.1 billion for this year.

“Looking ahead to 2023, we have strong plans and feel well-positioned to execute in our core businesses while advancing our growth initiatives,” he said in the call. “For full-year 2023, we expect our retail business to grow earnings faster than sales and adjusted earnings per share growth in the low double-digits. We plan to increase our capital this year, investing more in our store network and distribution centers.”

Loblaw reported opening 13 food and drug stores and shutting 10 locations in fiscal 2022. As of the fiscal year-end, the company’s retail network encompassed 2,444 stores, including 547 corporate-owned supermarkets under multiple banners, 551 franchised grocery stores and 1,346 Shoppers Drug Mart/Pharmaprix associate-owned drugstores. Aside from drug stores, Loblaw Cos. retail banners include Loblaws, Zehrs, Independent, Valu-Mart, Provigo, Atlantic Superstore, Fortinos T&T Supermarket, Wholesale Club, Real Canadian Superstore, No Frills, Maxi and Extra Foods.