If prices for certain items at one grocer goes down, other retailers will likely match it
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As Canadian consumers pull back on spending after years of rising costs, some retailers are cutting prices to lure people back into their stores.
Loblaw Cos. Ltd. recently announced a plan to lower prices on some of its merchandise in Shoppers Drug Marts after front store sales declined, driven in part by lower customer spend on such convenience items as food and household goods.
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“There is some pressure to keep consumers returning to the ‘store,’ even if its margin reduced,” said retail market strategist David Ian Gray.
One stock analyst covering several Canadian retailers said they expect other grocers to follow suit, if they have not already done so, should the planned pricing action by Loblaw lead to share gains — although those companies may not publicize it as Loblaw did.
Food prices are mostly competitive, and all grocers are priced closely within their competitive set week after week, according to their analysis of stores such as No Frills, Walmart, Food Basics or Loblaw, Metro, Sobeys, explained the analyst, who asked not to be named. This means if prices for certain items at one grocer does go down, other retailers will likely match it to remain competitive.
A significant number of public companies both sides of the border have revised their revenue guidance downward for the balance of the year, said Gray, adding that the retail industry “is super anxious,” not just about the rest of 2024 but 2025 and beyond.
Canadian Tire Corp. Ltd., which released its third quarter earnings on Nov. 7, highlighted a continued constraint in consumer spending, especially discretionary, in its earnings results. The company has experienced a decline in spending across every segment over the past five quarters, chief executive Greg Hicks told analysts, and seen sustained evidence of the Canadian shift to value and discounts.
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“Although we’ve experienced multiple interest rate cuts this year, consumers remain understandably cautious,” Hicks said during the earnings call. “Their spending reflected that restraint, but we were prepared.”
Gray said Canadian Tire’s mention of a big drop in consumer confidence and a drop in demand for discretionary items provides a relevant snapshot for other Canadian retailers.
In the case of Loblaw, he said the company is taking an across-the-board approach to shore up its own declining revenues last quarter, with Shoppers Drug Mart targeted as having some margin room to work with.
“This week, we launched a new program across our Shoppers and pharmacy network to lower the prices of hundreds of items that are most important to our customers,” Loblaw chief executive Per Bank said during the Nov. 13 earnings call.
Customers’ shift to value and discount products had a slight impact on food sales in Shoppers Drug Mart stores, the chief executive said, noting that the company continues to see this shift to discount and value in the fourth quarter, with stronger sales growth at its Maxi and No Frills stores.
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As a result, Shoppers will have lowered prices for a range of household products, including snacks, vitamins and shampoo, the company said.
“Food was down a little bit, and we’re addressing that by… lowering prices on 400 items,” Bank told analysts. “By lowering more than 400 products by 10 to 50 per cent, we will encourage more customers to shop in our front store.”
Retail analyst Bruce Winder said this is the company responding to “a more value driven consumer,” which is a huge investment for Loblaw/Shoppers Drug Mart. With convenience offerings priced sharply now, the campaign from Loblaw should help Shoppers Drug Mart pick up market share as word gets out, he said.
Major retailers in the United States have pledged similar price cuts on thousands of items this year.
Just last month, Target Corp. announced it will reduce regular prices on more than 2,000 items, including food and beverages, everyday essentials and holiday gifts, ahead of the holiday season. Those reductions follow Target’s previous announcement in May of cutting prices on about 5,000 items, eventually lowering prices on more than 8,000 total items year to date.
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Target said it “routinely adjusts its prices to remain competitive” in markets across the country.
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Walmart in the U.S. has also reportedly been working on cutting prices on grocery staples. The retail giant’s chief executive, Doug McMillion, said during the company’s second quarter earnings call in August that the company will be officially slicing the prices of 7,200 products within their stores.
• Email: dpaglinawan@postmedia.com
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Could more Canadian companies cut prices as consumers pull away?
2024-11-21 19:42:02
