On the same day it reported an uptick in sales helped boost its earnings by 38% in the second quarter, Loblaw Co. Ltd. announced a major acquisition. .
Loblaw will spend $225 million to acquire Asian food retailer T&T Supermarket Inc.
T&T operates 17 stores in British Columbia, Alberta and Ontario and has four distribution centres, three in Vancouver and the other in Toronto.
It has annual sales of about half a billion dollars.
Scott Cho, vice-president, research, Leger Marketing told Marketing the move was inevitable, given the growing trend of ethnic foods in the grocery retail sector.
“Things have changed from a few years back when you saw the ethnic food aisle kind of hidden away, tucked away in the back or to the side,” he said. “Now you start to see it in the mainstream aisles.”
“It’s a great move for them to… really own the category,” said Cho.
Though Cho sees the deal as a “win-win,” for both players.
“The only concern I would have is if they [Loblaw] don’t execute it well, if they start changing things to make it more North American and less of what it used to be—a very cultural, Chinese ethnic retailer. If they change that I think it would be a big mistake,” said Cho.
T&T has broken the mould where ethnic grocers are concerned, Cho said. The norm is to see small pockets of ethnic retailers in areas like Little India or Little Korea in downtown Toronto.
“T&T has been the one that broke through the ethnic barrier,” he said. “It’s no longer just happy serving the Chinese community, but it wants to be part of a larger community . It really has been a breakthrough retailer and it fits Loblaw well.”
Just after announcing the deal, Loblaw reported net earnings of $193 million or 70 cents per share for the quarter ended June 20.
That’s up from a profit of $140 million or 51 cents per share reported during the same quarter a year ago.
Loblaw said quarterly sales edged up 2.8% to $7.2 billion from $7 billion, led by growth in its food and drugstore divisions.
The company said it overcame moderate food price deflation as well as lower gas prices which sapped revenue from its gas bar locations.
Same-store sales, or sales at locations which have been open for at least a year, rose 2.5% during the quarter compared to growth of 0.7% recorded during the corresponding quarter of 2008.
