Veritas Investment Research’s Post

This won't be popular with everyone, but these are the numbers. In order to solve our economic challenges we need to move away from rhetoric and analyze the true causes. "Loblaw stores represent about 27 per cent of the Canadian retail food market. As of the most recent count, Canada’s population stands at about 41 million. This means that the equivalent of about 11 million people are sourcing their meals from a Loblaw retailer. With net profits currently coming to about $35.3 million per week, it comes to $3.20 once shared out equally among those 11 million shoppers." The ongoing boycott is demanding a price reduction of 15%, however Loblaws net profit margin is less then 3.5%. Yesterday, the San Francisco Fed published a report on US inflation that said "rising markups have not been a main driver of the recent surge and subsequent decline in inflation during the current recovery" There will be exceptions to this, but it is not the root cause. Let's work on long term solutions that aren't focused on vilifying business.

A social movement that began on Reddit is now gaining momentum. Are you someone who prefers to shop at local grocers? Or are you content with shopping at major retailers? An interesting article I came across discusses the factors that affect our food prices which describes a "perfect storm" largely outside the control of grocers and government. Where do you plan on shopping for your next grocery order? Let me know in the comments below⏬ #localgrocers #majorretailers #foodprices #groceryshopping #foodindustry

Many across the Middle East will no doubt be encouraged by the acknowledgment from a number of global brands that the boycott over perceived support for Israel is starting to have an impact on the bottom line. The anger on the Arab street over what is happening in Gaza is very real and the ubiquitousness of global brands makes them an easy target for a population that is otherwise helpless in confronting a political situation that has long caused resentment. The question is who will ultimately feel the impact of the boycott? Local employees of the brands and franchisees? For sure, just ask the people who recently got laid off by Americana (operator of KFC and Pizza Hut across several Middle Eastern countries) The local franchise owners? Most definitely. It is after all their business that is directly in the line of fire. The Middle Eastern economies? Probably, due to knock-on effects trickling through the system. Although on the flip-side local alternatives to the international brands have received a boost. The global corporations? Yes, by their own acknowledgment. But how much real and long-term impact there will be remains doubtful. These companies are probably big enough to weather the storm and recover from any losses. The governments whose policies toward the Middle East people are angry about and who probably are the ultimate target of the boycott? Very unlikely!!! Change may come when a new generation of politicians takes power, but that's many years away and it will not happen because of the boycott. So is the boycott a good thing or a bad thing? You tell me!

Loblaw Companies Limited is being praised for its success in the industry, but let's not forget the negative consequences of unbridled capitalism. The top of the pyramid is designed to produce only a few winners, resulting in less productive economies and rising prices. As more people participate in stock trading, corporations must be held accountable. Industries like Food, Communications, and Finance need to take a certain approach to prevent oligopolies from hurting everyone. Perhaps it's time for a new playbook to tackle social issues at their sources. #Capitalism #Economy #Accountability #SocialIssues #food #communications #finance

The sooner Woolworths focuses in on what it is very good at which is running the best full range supermarket chain in Australia possibly the Southern Hemisphere instead of getting involved in making political statements like “the voice” & deranging Aust Day and make a political comment re the day itself the better we will all be. Like many others never in my 50 + years retail experience have I ever seen a company like Woolworths trying to dictate matters that are not their right to do so. Woolworths & for that matter Coles get involved in all sorts of culturally significant events like Lunar New Year, Ramadan, Diwali & others depending on the demographic. This is smart retailing & avoid a cookie cutter mentality. The least they could do is support Aust. Day festivities that in reality is more than likely more popular across the board than those mentioned. Is Woolworths Board & Executive team still in denial that over 60% Australians voted against “the voice” & then continue on with their Aust. Day stance. It just doesn’t pass the Pub Test,around the BBQ chat or even the water cooler catch up.

(AUSTRALIA 13.02.24) ‘Trickery’: Supermarket multi-buy tactic criticised by shoppers. Shoppers have criticized supermarkets for employing tactics like multi-buy specials, with a recent photo of the chocolate aisle at Woolworths sparking debate. The deal offered three chocolate bars for $15, although each bar was individually priced between $5.50-6. Consumers questioned the small savings and whether such deals could be considered special offers. This discussion coincided with the ongoing Australian Competition and Consumer Commission's inquiry into the supermarket sector, which will examine retail price competitiveness and allegations of price gouging. Professor Nitika Garg from the University of New South Wales Business School explained the psychology behind such tactics, highlighting the dopamine rush consumers feel when securing a deal. However, she warned consumers to compare unit prices to ensure actual savings. Additionally, chocolate prices have been on the rise due to increasing input costs, particularly in cocoa, driven by supply issues in West Africa. https://lnkd.in/gzqzgP92

Am I dreaming? The solution to high grocery prices is to bring in foreign competitors? How about supporting the great Canadian independent grocers. Some may recall Aldi tried to enter Canada about 20 years ago. They had to leave months later due to grocery restrictions in almost every commercial centre. Given there is essential ZERO commercial development happening there is no way for foreign grocers to come. Not to mention, if they do come there will be more competition for the scarce retail sites = higher rent = higher cost. FAIL.

Check out my blog post https://wix.to/YEF5ouL A BBC article highlights the high costs at Canada's Loblaw compared to the UK's Tesco and the U.S.'s Walmart. A whole chicken costs $5.63 CAD at Tesco but $11.59 CAD at Loblaw. This disparity has fueled a nationwide boycott initiated by the 'r/loblawsisoutofcontrol' subreddit, founded by Emily Johnson. With 88,000 members, the movement protests Loblaw's high prices and substantial profits, which saw a 4.5% revenue increase to $13.58 billion last quarter. Finance Minister Chrystia Freeland calls for more competition in the grocery sector, while the Trudeau government considers attracting foreign retailers like Aldi and Lidl to Canada. #VeritasMedia #Loblaw #GroceryPrices #BoycottLoblaw #Tesco #Walmart #CanadianEconomy #ChrystiaFreeland #ForeignRetailers #Aldi #Lidl #EmilyJohnson #rLoblawsIsOutOfControl

I received a couple of requests to look at the gross margin history for Loblaws and other Canadian grocers. It is not a perfect comparison because each grocer has a different year-end, but I think it shows that Loblaws has been doing a pretty good job at expanding its margin compared to the other grocers. I did look at Loblaws even farther back - the margin was comparable to the 2020 result. Thanks to Jason Gray and Ben Bisset, CPA, CA for their suggestion on this post. Loblaws (Dec 31st year-end) 2020 - 30.3% 2023 - 32.0% Sobeys (Apr 30th, year-end) 2020 - 19.9% 2023 - 19.7% Metro (Sept 30th, year-end) 2020 - 24.9% 2023 - 23.9% #loblaws #groceryprices #grossmargin

Today's food for thought comes from #Canada and Loblaws Inc announcement of its opening 3 #NoName" discount stores in Canada. With 1300 SKUs, a high bargain-oriented private label and simple operations/limited opening hours it is an interesting way for Loblaws to try and reach a more discount oriented shopper. Some key points to keep in mind (especially for anyone reading this less familiar with Loblaws or Canadian retail in general (I can already feel the WHY DON'T US RETAILERS DO THIS? posts forming in the inter-ether :)...that may or may not be a good idea, but let's understand this one completely first). 1) No Name is not a new brand - Loblaws launched this discount private label in 1978 and for a short time in the 1980s it was the single largest consumer brand in Canada. Despite all of the well-deserved fame of President's Choice, No Name was Loblaws first super successful private brand - so this is not introducing a new brand to Canadians, just a new box. 2) The location of the stores is interesting - all 3 are in border towns that experience a lot of cross border shopping - Windsor (Detroit) and St. Catherine's (Niagra/Buffalo) abut large cities but the Brockville store is 15 miles from an Aldi near the Ogendsburg-Prescott border crossing in NY state). 3) Canadians are increasingly using the US as a value destination for grocery (exchange rate permitting)...I'll post a TikTok of some Canadians discovering Aldi in the comments. As US interest rates seem set to fall other things being equal that means a weaker US$ and more cross-border arbitrage opportunity. 4) Loblaws is coming under fire from shoppers for their pricing - in some categories they're over 50% of the Canadian market. A Reddit-centered boycott of Loblaws based on pricing was kicked off in July. 5) Everyone over 35 just rolled their eyes at the words "Reddit boycott" but it's not just that - the Canadian government is apparently actively courting international grocers to set up operations in Canada to challenge Loblaws (including Aldi and Lidl - Lidl almost entered Canada 20 years ago but scuttled the plan). Link to that article in comments as well. So what we have here isn't a retailer launching a new brand but a retailer taking a well-established brand and crafting a format to meet a range of shopper, reputational and political objectives. At Retail Cities our goal is to help you understand what to learn from global retail, but also what not to! No food for thought tomorrow - have a great weekend! https://lnkd.in/eaHpAxFa