Loblaw’s sales didn’t quite meet what analysts were expecting this past quarter, mostly because people have been spending less on things they don’t really need, like electronics and household items. This has pushed the company to shift even more focus toward its discount stores, where shoppers are looking to save.
In the third quarter, which ended on October 5, Loblaw’s total sales were up by 1.5% from last year, rising from $18.26 billion to $18.54 billion. But that still fell short of the $18.65 billion analysts predicted. After the earnings report, Loblaw’s stock dropped 3% on Wednesday, with shares trading at $182.57 around midday.
Loblaw said that sales of non-food items like electronics, household goods, and other extras actually dragged down their food sales in existing stores. While overall sales went up, the growth in same-store sales—an important retail metric that shows how established stores are doing—slowed down significantly. For example, grocery same-store sales only rose 0.5%, which is a big drop from last year’s 4.5%. Similarly, Shoppers Drug Mart’s same-store sales growth slowed to 2.9%, down from 4.6% last year.
Loblaw’s CFO, Richard Dufresne, pointed out that some of this slower growth was because Thanksgiving fell in the fourth quarter this year instead of the third, which makes comparisons a bit tricky. Without the Thanksgiving effect, food sales growth in established stores would have been 1.3%.
With customers spending less on big-ticket, discretionary items, Loblaw has decided to stop selling certain electronics at Shoppers Drug Mart, like laptops, TVs, and gaming consoles. This shift might impact fourth-quarter sales, especially with the holiday season around the corner, but Loblaw is betting that focusing on its core products will be more effective.
While inflation has cooled off a bit in Canada, many customers are still looking to save where they can. As a result, Loblaw’s discount stores, like No Frills and Maxi, have been performing better than its regular locations, such as Loblaws and Superstore. Loblaw has been leaning into this trend, opening 25 new discount locations last quarter alone. They’re also testing out three new “ultra-discount” pilot stores under the No Name brand, which offer a limited selection of low-cost items with a focus on savings. These No Name stores are expected to save customers around 20% by cutting out extra costs and only stocking a narrow range of items, without any refrigerated products.
“The idea with these stores is to strip out any unnecessary costs and pass those savings directly to our customers,” Loblaw CEO Per Bank said on a recent call with analysts. He added that it’s too soon to know if the model will work, but they’re learning as they go. “If it’s successful, we’ll open more of these stores. If not, we’ll take what we learned and apply it to our discount program.”
Loblaw’s strategy reflects how it’s adapting to economic pressures and shifting shopping behaviors, focusing more on budget-friendly options to meet consumers’ current needs.