Title: Taking a broader view

Sub-title: Competition often forces grocers to focus almost exclusively on day-to-day challenges. But equity analysts can help provide a broader view.

 

In late April, TD Newcrest released a report on Canada’s publicly-traded grocery stocks, as well as those of sector suppliers and competitors. Like many similar financial services firm publications, the document, titled The Quarterly Staple, provides investors with insights into how changing consumer spending patterns are affecting the trade.

 

However the document is also littered with information regarding consumer demand patterns and the industry’s competitive position, which makes it useful to a far broader range of grocery sector stakeholders.

 

That’s because equity analysts don’t judge grocers’ performance in isolation, but relative to their competitors, both within their industry and externally too. “Massive corrections in equity and commodity markets, (coupled with) the major decline in consumers confidence, (have) caused Canadians to ramp up their precautionary savings,” writes Mike Van Aelst, vice-president at TD Newcrest, the document’s co-author. “The fact is that Canadians simply are not spending as much.”

 

The good news writes Van Aelst, is that the recession has prompted consumers to eat at home more. That means less business for restaurants, but better sales for food retailers. Van Aelst notes for example that Canadian supermarket sales for January (the most recent data available at the time) increased by 7.0 percent year over year, while overall retail sales slumped by 2.1 percent during the period.

 

Thinking outside the box

Much of the data provided in TD Newcrest’s The Quarterly Staple, is highly technical, and meant mostly for its clients, which are typically sophisticated investment professionals. These investors want to know TD Newcrest’s opinion about Metro Inc. (which it rates as a buy). Loblaw, (which TD thinks investors should merely hold) or Empire/ Sobeys (which TD provides information about, but offers no opinions on).

 

However what makes the TD Newcrest report (and others like it) interesting, is that it details the reasoning behind its calls and backs it up with up with facts and research. Much of this can be quite useful for grocers on the front lines, many of whom are so intensely focused on their day to day competition, that they do not have the time to monitor what suppliers, competitors both within and in related industries are up to.

 

Tracking the competition, within the industry…as well as from outside players

For example Van Aelst notes in his report that Empire reported a substantial 7.6 percent in same stores sales in January. This information might be seemingly innocuous, but a small independent who is wondering why he lost traffic that month, might pick up on that fact, and take a trip across town to visit the local Sobeys store to find out what, if anything, they are doing differently. 

 

Van Aelst also noted that Loblaw has taken steps recently to extend its Joe Fresh Style brand (which is ranked number two in Canada, according to NPD Group) into mass cosmetics, which brings the number of SKUs covered by the label up to 200. Once again, this is the kind of information that a sharp-eyed grocery merchandizing manager could pick up on, and use it to assess whether his own company’s stores could stock a wider variety of products.

 

Not all of the information covered in TD Newcrest’s The Quarterly Staple, is store specific. For example Van Aelst also analyses Statistics Canada data regarding wholesale and retail food price inflation, and offers an assessment regarding what it means for company results. In addition, the report also covers briefly what sector competitors such as Tim Hortons, McDonalds, and Starbucks are up to, on the theory that dollars spent in those establishments, are often potential sales lost to grocers.

 

In fact the TD Newcrest report’s release was quite timely. In it, the group made an call that Metro’s Inc.’s earnings would come in above what the average consensus estimates were on the street. A few days later, Van Aelst and his team were vindicated, when Metro Inc. announced quarterly earnings of $0.68 per shares compared to consensus estimates of just $0.62 per share.

 

 

Peter Diekmeyer (peter@peterdiekmeyer,com) is Canadian Grocer’s Quebec correspondent.

 

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