March 4, 2009 / 10:11 PM / in 9 years

Canadian grocers see sudden shift to frugality

TORONTO (Reuters) - Canadians are shifting away from premium products when they visit the supermarket as the recession bites deeper and consumer confidence weakens, grocery chain executives said on Wednesday.

Executives at Loblaw Companies, the country’s No. 1 supermarket chain, and Empire Co Ltd, owner of Sobeys, the No. 2 chain, said the change in buying habits has been quick and profound and is not likely to be short-lived.

“There is a flight to value and the flight to value is long haul and not short haul. This is not going to be a temporary thing that happens for two or three months,” Allan Leighton, president and deputy chairman at Loblaw, told a retail conference held by CIBC World Markets in Toronto.

Leighton said shoppers have “all of a sudden become very value conscious”.

Also at the conference, Bill McEwan, chief executive of Sobeys, said the impact of the economic downturn on consumer confidence has been “profound”.

“It’s measurable differences in the way consumers are behaving, whether it’s transaction count or transaction size, the categories that are growing, the categories that are declining,” McEwan said.

”We’re seeing categories that were relatively flat or stable before, grow at more than double digits, sometimes 15 to 20 percent growth when other things are in 5 percent decline.

“Tea and coffee is an example, pasta and soups. Things that were staples in modest growth or in some cases decline, are now no longer flat or stable items, they’re important items to offset the real movement, which is a lot of people eating less out of home and preparing more for themselves.”

McEwan said Sobeys is seeing premium dinners and ice creams decline at rates “we had never anticipated” two or three years ago.

Leighton said the trend bodes well for Loblaw’s well-known Presidents Choice line of value-priced private-label items as well as its no-name brands.

“I see (Presidents Choice) and no-name playing a slightly bigger role than they do today more in profitability than in sales,” he said.

Loblaw shares were up 2 percent at C$30.18 on the Toronto Stock Exchange on Wednesday. Empire shares gained 3 percent to

C$51.62.

Retail sales in Canada fell 5.4 percent in December, more than twice the amount forecast by analysts in a Reuters poll. It was the biggest drop since Statistics Canada began using its current survey methodology in 1991.

However, profits at Loblaw and Metro Inc, the No. 3 supermarket chain, rose in the final quarter of 2008.

At Sobeys, McEwan said the new frugality can be seen at the deli counter, where shoppers are opting for lower-end ham and blocks of cheddar over high-end pastramis and cheeses.

“The promotional strategies that we execute on a weekly basis are ideal for this situation,” McEwan said. “It’s more important now than ever to have those items that you promised customers in stock, available to them because the price doesn’t constitute value, the purchase and the savings to the consumers constitute value.”

($1=$1.27 Canadian)

Reporting by Scott Anderson and Natalie Armstrong; Editing by Peter Galloway

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