Big build pays off

April 10, 2014

A decade ago Loblaws constructed and opened a giant SuperStore in Whitehorse, about 4 times the size of its much smaller Extra Foods store in a nearby strip mall. The decision turned out to be a profitable one for the big chain.

Loblaws is Canada’s largest grocery chain. With more than 2,300 corporate, franchised and associate-owned locations, Loblaw, its franchisees, employ approximately 192,000 full- and part-time employees, making it one of Canada’s largest private sector employers. The company has 107 Real Canadian Superstore locations across Canada. The company just closed its purchase of the Shoppers Drug Mart chain. In 2012 Loblaws had $43 billion in revenue and earned $3 billion adjusted EBITDA. It is listed on TSX ticker symbol L, with a market cap of $19B.

In 2001 WalMart opened a big box store (~50,000 s.f.) in Whitehorse and Loblaws had to act. The company decided to build big, constructing a ~120,000 s.f. behemoth a short distance from WalMart. Interestingly the company decided against the low margin gas business and did not build a gas station.

In 2011, flooding severed the Alaska highway road connection to the south, cutting off food supplies for days on end. Loblaws chartered a Hercules aircraft and brought the groceries in by air.

The Yukon Bureau of Stats show the food and beverage retail sector reached $194 M in 2013, increasing by only 0.7%. 

The Superstore and its affiliated Extra Foods store are one of the largest private sector employers in Whitehorse, probably employing 100 - 200 people.

Commentary

While the rate of growth in food and beverage business has been anemic in 2013 there are many reasons to look on the Superstore a great move for Loblaws:

• The Superstore probably captures 50% of the grocery business in Whitehorse, with Extra Foods taking another 10% share.
• The competition is ferocious in the south. WalMart in Whitehorse is not competitive in groceries, taking perhaps a 5% share.
• The catchment area is important. Whitehorse has a population of only 28,500 people but services the Mackenzie Delta, tourists in the summer and even Alaskan visitors.

In conversation with an anonymous Manager he told me Loblaws is very pleasantly surprised at how well their investment turned out.

Sources

• a)http://www.loblaw.ca/English/About-Us/company-overview/default.aspx