Tough times within the oilpatch are leading to deep frugality within the grocery aisles, delivering a harsh blow to the who owns Sobeys and Safeway.
Empire Co. posted adjusted third-quarter earnings Thursday that were far below analyst estimates and also the Stellarton, N.S.-based retailer lost $1.36 billion in the third quarter after writing down the need for its Western Canadian business, primarily its Safeway banner.
“We are not coping with exactly the same customer psyche that we were coping with, even a last year,” Marc Poulin, chief executive of Sobeys, told analysts on a conference call Thursday. “The behaviour from the customer is different in Western Canada, and we have to acknowledge that,” particularly in Alberta and Saskatchewan.
After earnings adjustments, the retailer recorded profit of 30 cents per be part of the 13-week period ended Jan. 30, or $82.5 million, down from $118.Six million (43 cents), last year.
Analysts had been anticipating earnings of 35 cents, based on mean estimates from Thomson Reuters.
Revenue rose to $6.03 billion from $5.94 billion this past year. But same-store sales, a key bellwether of retail health, rose a meagre 0.4 percent. Excluding the negative impact of fuel sales and it is Western Canadian business unit, same-store sales rose 2.7 percent, Sobeys said.
Poulin said the grocery chain has moved to stem the sales erosion by lowering prices, citing some success with a new lower-priced produce program and said hello continues to alter costs to be able to react to changes in customer behaviour.
Overall food prices rose four per cent for that year ending in January, according to Statistics Canada, with prices soaring in particular for fresh vegetables and fruit, up 18 per cent and 13 per cent, respectively.
While Loblaw president Galen Weston also noted alterations in Western Canadian consumer behaviour inside a fourth-quarter business call with analysts last month, there was a vital difference – he cited a “disproportionate momentum” in Loblaw’s discount store business in the West, a segment Safeway lacks.
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“The most illustrative example of that is in Alberta, and the great news for us for the reason that province is that we’re very well situated in terms of discount,” Weston said. “I don’t wish to say that’s entirely helpful, but certainly I believe we’re more insulated in the impact than others.”
In Western Canada, Loblaw operates the large-sized Real Canadian Superstore outlets and discount division No Frills, with prices less than its conventional full-concept supermarkets.
Poulin told analysts that Safeway increased the number of price promotions in the third quarter, but the efforts were met with “disappointing” consumer response.
“It did not have the outcomes that those actions usually led to in the past, which basically is telling us we have to address the issue from a more structural perspective.”
In addition to ongoing strategic pricing changes, Poulin said the retailer expects to understand cost savings from harmonizing flyers between its retail chains and can still renovate stores in Western Canada to some popular newer model.
He predicts the grocery business will go back to operating margin growth and top-line sales momentum over “the next few quarters.”
Empire wrote down $1.59 billion of goodwill in the period in recognition that the long-term value of its Safeway business is lower than previously estimated. The web loss amounted to $5.03 per share.
Sobeys’ acquisition of Safeway in 2013 for $5.8 billion was followed quickly by Loblaw’s announcement that it would acquire Shoppers Drug Mart, and also the subsequent industry realignment intensified a lengthy period of price competition between your chains.
“Between 2012 and 2014, these were competing very, very strongly on price and consumer packaged goods prices also declined over that time, and grocery store sq footage was growing,” said Kevin Grier, a food industry analyst based in Guelph. Ont. at Kevin Grier Market Analysis & Consulting Inc.
The pressure let up a little: Over time, Metro, Sobeys and Loblaw closed down unproductive stores while the failure of Target diminished some price competition and cemented the successes of the incumbent retailers.
“The (grocery chains) have been peaceful and enjoyed 2015, however i think they are going to start competing again,” Grier said.
He said while the depreciating dollar has had some of the heat for food price inflation, “global commodity prices – corn, cocoa, coffee, sugar, cattle – are all down, and that’s important because, they’re also correlated with grocery prices.”
Financial Post
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