With rising interest rates squeezing disposable income, shoppers are looking around. But that plays to other strengths of the big grocery giants
have been behaving like anything but the slow growth, low-margin businesses they have been historically.
The question for investors is whether the pandemic was a one-time energizer, or is there more to come? The answer seems to be that while the surge may be over, the sector has a new appeal in a recessionary environment. Grocery stores were one of the few places consumers could spend money during the lockdowns. Full-service stores offered a wide range of products, meaning all the shopping could be done more safely, in one place. The grocers beefed up online ordering and customers could opt for home delivery or contactless pick up at the store.
She says conventional store sales have held up more than might be expected post-pandemic. Prices are higher but the stores are a more pleasant place to shop with more employees to help and a wider selection of goods. Loblaw’s PC Optimum loyalty program, with six million members, is a powerful marketing tool. Metro plans to beef up in this area with the launch of a co-branded Royal Bank of Canada Visa card this spring.
Ms. Wong’s analysis sees Loblaw passing through the full cost of food inflation. She concluded this by comparing its reported internal food consumer price index to Statistics Canada’s food at home CPI, which are the same. As Ms. Wong says, “If you’re working from home you have much less need for cosmetics.” With reopening and back-to-office trends, these sales are picking up.So, which grocer to pick for an investment portfolio? Ms. Wong favours Metro. She argues its discounting strategy is well-positioned as consumers look for more value in a recession. Loblaw has a wider exposure to a weaker economy through its Joe Fresh general merchandise unit and credit card operations.
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