Dollarama Watchful of Competitors as Loblaw Introduces New Budget-Friendly Chain

Dollarama Inc.’s food aisles have extended beyond just sweet treats or piles of gum near the checkout counter in recent years. Despite this expansion, the company’s chief executive maintains that they are “not in the grocery business,” although they are keeping an eye on the sector.

“It’s just one small part of our store,” Neil Rossy told analysts on a call, where he addressed questions about the company’s food products and competition within the industry.

“We will keep an eye on all retailers — just as all retailers keep an eye on us — to stay competitive and understand the market.”

Over the past decade, and as consumers increasingly seek deals, Dollarama’s food offerings have expanded to include bread and pantry staples like cereal, rice, and pasta. These items are sold at prices comparable to or lower than supermarkets.

However, competition in the discount market segment where Dollarama operates has intensified, especially with the country’s largest grocery chain testing a new ultra-discount store.

The No Name stores being piloted by Loblaw Cos. Ltd. in Ontario are positioned as 20 percent cheaper than other discount retailers, including No Frills. This cost-saving strategy is achieved through a smaller store footprint, a reduced selection of chilled products, and a focus on No Name merchandise.

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Despite speculation that Dollarama is becoming a grocery competitor, Rossy emphasized that grocers are still on their radar.

“All retailers in Canada understand that everyone is competing with everyone else in any given category or product,” he explained.

Rossy declined to disclose how much of Dollarama’s sales would overlap with Loblaw or the food category, asserting that the company’s strength lies in its wide assortment of items rather than just its grocery products.

“The unique aspect of Dollarama is the diverse range of departments that harken back to the old five-and-dime convenience store,” he added.

Dollarama’s extensive product range contributed to a second-quarter profit of $285.9 million, up from $245.8 million in the same period last year, with a 7.4 percent increase in sales.

The company reported earnings of $1.02 per diluted share for the 13-week period ending July 28, up from 86 cents per diluted share a year earlier. Despite a challenging start to the summer with unfavorable weather, sales totaled $1.56 billion for the quarter, an increase from $1.46 billion in the same period last year.

Comparable store sales rose by 4.7 percent, although the average transaction decreased by 2.2 percent, and foot traffic increased by seven percent, noted RBC analyst Irene Nattel.

Nattel highlighted that these figures reflect strong demand as cautious consumers focus on essential consumables. Analysts attribute this behavior to slow interest rate drops and high prices of essential goods, which are impacting household budgets.

Many Canadians are turning to budget-friendly options, opting for more affordable brands and cutting back on small luxuries in the current economic climate.

“During tough times, even wealthier consumers may consider shopping for deals at Dollarama or other discount retailers,” Rossy observed. “When the economy is tight, consumers are more conscious and may choose to shop for bargains rather than splurge on luxury items.”

“The current economic environment is prompting a shift not only in average consumers looking to save money but also in more affluent shoppers,” he added. “When finances are strained, consumers may opt to spend a few extra minutes shopping for better deals at nearby stores.”