The grocery segment is simply a very tough market to assess for long-term investors, for a number of reasons. The ability of grocery retailers to raise prices on a year over year basis, even to match inflation, remains a difficult proposition, as price wars and continual downward pressure from price-sensitive consumers has kept a lid on margins across the sector, historically.
This pressure is one of the main reasons I've steered clear of the grocery retail segment altogether, and is one of the main reasons I've avoided the stock of Loblaw Companies Limited (TSX:L) - the other key issue being the company's debt load.
That said, Loblaw has recently announced the results of the company's new pricing strategy in its most recent quarterly earnings, to the applause of investors such as myself. Revenue did not grow as expected.
However, the implementation of an everyday low pricing strategy for many non-food items in Loblaw's inventory allowed the company to rein in margin deterioration, and improve profitability in segments which many analysts have pointed to in the past as underperforming, compared to peers.
The desired effect of this pricing strategy has been to weed out customers who come to Loblaw stores looking for deals, keeping instead loyal customers who will continue to come back no matter what.
This is a stock I will be keeping my eye on, and if margins continue to improve, will dive deeper into the company's financials to see if they make sense from the perspective of a long-term investor.
Invest wisely, my friends.
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