Canada’s Grocery Giants Face Prospect Of Eroding Margins
February 17, 2014 | 1 min to read
There is a serious downside risk to Canada’s grocery sector if the superior margins it enjoys compared to the U.S. decline over the next two years, says a new industry report.
The big three grocers have long had substantially higher margins than their U.S. counterparts. But if they were to erode under unrelenting competitive pressure, Loblaw Cos. Ltd. shares could decline by 24% to $32, Metro Inc. shares by 30% to $44, and Sobeys’ owner Empire Co. shares by 39% to $44, according to an analysis published Wednesday by BMO retailing analyst Peter Sklar.
“With already intense competitive activity expected to continue, an absence of food inflation, a strong U.S. dollar (which increases procurement costs), and a cautious consumer, we believe the major Canadian incumbent grocery players — namely, the three publicly traded grocers Loblaw, Sobeys and Metro — will have a tough hill to climb in the foreseeable future,” he said in the report.
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