TORONTO – A spike in food prices has widened the price divide between Canada’s grocery stores as well as their discount divisions – a factor that could engage in in Loblaw Cos.’ favour.
“Looking at identical items, the discount channel does not appear to have increased shelf prices to the significant degree, while the conventional channel has significantly increased shelf prices,” analyst Keith Howlett of Dejardins Securities wrote within an industry report Monday after an assessment of grocery price fluctuations between retail channels. “We also note a greater diversity of pricing on identical items between competitors within the same channel inside the same trading area.”
Howlett anticipates the pricing gap between discount and conventional channels will move toward equilibrium within the next 4 to 6 weeks.
But among public grocers, “this duration of pricing confusion favours industry leader Loblaw,” given its scale in accordance with other players and its large network of discount stores, No Frills.
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“We would expect customer visitors to shift temporarily toward the discount and club channels until required price increases are implemented across all channels within the coming weeks,” the analyst said. Howlett rates Loblaw like a buy with a target cost of $76. Also, he has a buy on Metro Inc., operator from the discount chain Food Basics, with a price target of $44.
Grocery price inflation, which climbed 4.1 per cent nationally on the fourth quarter based on Canada’s Consumer Price Index, has been aggravated with a weak Canadian dollar. Food prices have become a warm button topic among consumers recently, with a Canadian price peak for cauliflower in January drawing international attention.
On a celebration call with analysts last week to go over fourth-quarter results, Loblaw president Galen Weston said the retailer was experiencing “disproportionate momentum” within the discount side of their business.
“The most illustrative example of that’s in Alberta, and the great news for us in that province is that we’re really well-positioned in terms of discount, and so I don’t want to say that’s entirely helpful, and surely I believe we’re more insulated in the impact than others,” Weston said.
Financial Post
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