Loblaw buys less than 10 per cent of its stock from the U.S., he said. And alternatives already exist in other categories, such as household cleaning products and cereals.Doug Ives/The Canadian Press
Loblaw Companies Ltd. L-T expects sales of U.S.-made products to decline significantly if tariffs make those items more expensive, while its own private-label brands stand to benefit from shoppers changing their buying decisions, the company’s chief executive officer said on Thursday.
“They are really seeking to buy more Canadian products,” president and CEO Per Bank said during an earnings call to discuss Loblaw’s fourth-quarter results. But he added that there is significant concern about the inflationary pressure that tariffs would cause, pushing up prices for some products. “We are seeing these tariffs as a kind of tax on products that will hurt consumers on both sides of the border.”
Earlier this month, U.S. President Donald Trump paused a plan to apply 25-per-cent tariffs on all Canadian imports except for oil and gas until March 4, but he has signed an executive order applying the tax on all steel and aluminum coming from Canada starting March 12. Canada has also paused plans for retaliatory tariffs on a wide range of U.S. products.
If those measures are implemented, grocers will feel the largest impact in the produce aisle, where imported fresh fruits and vegetables from the United States are common. Mr. Bank said Loblaw should be able to find alternatives for roughly half its U.S. produce suppliers.
Over all, Loblaw buys less than 10 per cent of its stock from the U.S., he said. And alternatives already exist in other categories, such as household cleaning products and cereals.
Mr. Bank mentioned WK Kellogg Co. KLG-N as one example of a U.S. supplier that could be affected. If tariffs are applied, “then of course we will probably promote our control brands instead of Kellogg’s, because nobody will buy it if it’s 25-per-cent more expensive,” he said. Loblaw owns President’s Choice cereals including Fruity Os, Loads of Raisins and Crispy Rice, which compete with Kellogg’s brands such as Fruit Loops, Raisin Bran and Rice Krispies.
Another example is household and cleaning products. Loblaw stocks items from more than 30 U.S. vendors, and if tariffs are applied, “then of course those products will not be competitive any more, and all the sales will go to our control brands, and they’re all produced in Canada,” Mr. Bank said. “So that’s good for Canada, it’s good for customers and it’s good for us.”
Even with the pause in tariffs, retailers are still seeing a shift in Canadians’ buying habits as they seek out more local products.
In the first week of February alone, the Brampton, Ont.-based grocer saw a 10-per-cent increase in purchases of Canadian items in its stores compared to the week before.
“We’re talking with our current Canadian vendors to source more products from them, and looking into new and alternative local vendors,” Loblaw spokesperson Catherine Thomas wrote in an e-mailed statement Thursday.
Mr. Trump’s threatened tariffs on Canada and Mexico, and a new 10-per-cent tariff on Chinese goods, have also weighed on American consumers amid worries about inflation. On Thursday, Walmart Inc. forecast lower-than-expected sales and earnings in the coming year, sending its stock price down by more than 6 per cent on concerns about a slowdown in spending.
Concerns about trade tensions have likewise dragged down consumer sentiment in Canada, which has yet to recover from the impact of high interest rates and inflation in recent years. Shoppers have been redeeming loyalty points more frequently as they look for ways to offset higher grocery prices, a trend Loblaw expects to continue. On Thursday, the company recorded a one-time non-cash charge, reflecting a revaluing of its liability related to outstanding points held by members of its PC Optimum program.
That charge contributed to a dip in fourth-quarter profits. Net earnings available to common shareholders fell to $462-million, or $1.52 in diluted earnings per common share, in the quarter ended Dec. 28, 2024, compared to $541-million, or $1.72 per share, in the same period the prior year.
Excluding that charge and other adjustments, adjusted net earnings available to common shareholders grew to $669-million, or $2.20 per share on a diluted basis, compared to $630-million, or $2 per share, in the prior year. That fell below analysts’ expectations of $671.6-million, or $2.21 per share, according to the consensus estimate from S&P Capital IQ.
Loblaw has benefited from the increase in discount shopping in recent years. Canada’s largest grocer already has a higher percentage of discount stores in its network than some competitors do, and it is planning to open more as it aggressively courts price-sensitive customers. Last year represented the company’s strongest growth in market share in more than a decade, Mr. Bank said on Thursday.
In 2024, the retailer converted 38 of its regular grocery locations to discount banners, in addition to opening new stores. In the year ahead, Loblaw plans to open 80 new grocery and pharmacy locations, 50 of which will be discount grocery stores.
Loblaw is also continuing to invest in expanding its health care business, with plans to open 100 new “pharmacy care clinics” in 2025. These expanded locations include consultation rooms for health services, as the scope of conditions pharmacists are permitted to address expands in some provinces.
Such services are contributing to same-store sales growth – an important metric that tracks increases in sales not attributable to new store openings. At Loblaw-owned drugstores, including Shoppers Drug Mart, same-store sales grew by 1.3 per cent in the fourth quarter, but pharmacy and health services grew by 6.3 per cent, offsetting a decline in sales in the front of the stores.
At Loblaw’s grocery stores, same-store sales grew by 2.5 per cent in the quarter. The results were positively affected by a timing shift, with Canada’s Thanksgiving holiday occurring later in 2024 than it did the previous year. Excluding that shift, sales growth was roughly 1.5 per cent.