Check Out These Dividend-Paying Food Retailers

Are these food retailers optimizing operations while delivering what consumers want?

| More on:
The Motley Fool

One of the most competitive business sectors is food retailing. Margins are slim and supermarket chains depend on significant volume. Additionally, these companies must focus on efficient operations that reduce expenses to help bolster bottom lines. Here are five things to consider when investing in dividend-paying food retailers.

1. Is the company modifying its product offerings to meet changing demographics?

Loblaw (TSX: L) has acquired Arz Fine Foods, which operates a grocery store and bakery in Toronto, Ontario. The Arz business will operate as a unique operating branch of Loblaw. The business includes a 10,000 sq. ft. retail store, commercial bakery, food commissary, as well as distribution centre.

In 2009, Loblaw acquired premier Asian supermarket chain T&T, which currently has 22 supermarkets. In 2013, it debuted a T&T own-store line. It currently consists of 58 products and will be close to double that next year.

Speaking of the recent Arz acquisition, Mr. Vicente Trius, President of Loblaw, said, “This key partnership holds great promise as Canada’s Middle Eastern population and the Canadian taste for Middle Eastern food continues to grow.”

2. Is the company innovative in its customer-service focus?

Some of the top food retailers have retail loyalty programs designed to engage customers for long-term growth. Kroger (NYSE: KR) has its fuel loyalty program. Customers who shop at Kroger and use the Plus Card earn 1 fuel point for every $1 spent. In addition, customers can earn earn 2x fuel points on gift cards, no-contract wireless phones, and airtime cards. In essence, the company is targeting food shoppers via non-food initiatives.

3. Is the company focused on efficient distribution across its network?

Empire (TSX: EMP-A), parent of Canada’s Sobeys supermarkets, has state-of-the-art Sobeys distribution centres in Vaughan, Ontario, and Terrebonne, Québec. These distribution centres employ a fully automated warehouse and picking technology to provide exceptional product selection accuracy and customized store deliveries.

Overall the company has a national network of 26 distribution centres focusing on timely distribution to all its stores. Sobeys has made considerable investments in recent years in store and distribution infrastructure and business processes and systems. It has also made investments in sales and cost productivity programs.

4. Is the company expansion focused on building market share?

Whole Foods Market (NASDAQ: WFM) announced last year that in Canada it could open 40-plus stores. Currently, it has eight stores (B.C. and Ontario). Overall, Whole Foods opens approximately 30 stores each year. In 2012, the company opened a new 40,000-square-foot outlet in Markham, Ontario, north of Toronto. The design of this store is to look like a series of boutiques within a store.

Mr. John Mackey, Whole Foods Market co-chief executive, said last year, “By the time we actually get to the place of being able to open those stores, I expect the market will continue to evolve. So it probably is more than that.”

5. Is the company making strategic decisions to drive sales?

Metro (TSX: MRU), for the second quarter ended March 15, 2014 had sales of $2,554.8 million. This represents an increase of 1.7% versus the prior year. Its same store sales increased 1.0%. Part of the sales increase was due to the company reorganizing its Ontario store network. It closed or converted to its “Food Basics” discount banner 15 of its Ontario Metro stores. Furthermore it is operating Targets in-store pharmacies in Quebec under the Brunet name.

Today’s food retailers must continually find new ways to grow sales while reining in costs. Additionally, these companies must be cognizant of changing consumer demographics and its demand for different products.  A continued focus on the above 5 issues by food retailers should position them for sustainable returns.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Michael Ugulini has no positions in any of the companies mentioned in this article. John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Whole Foods Market. Tom Gardner owns shares of Whole Foods Market. The Motley Fool owns shares of Whole Foods Market.

More on Investing

dividends grow over time
Dividend Stocks

1 Magnificent Dividend Stock That’s Down 10% and Trading at a Once-in-a-Decade Valuation

This dividend stock may be down around 10%, but there is a huge future opportunity for those wanting growth as…

Read more »

Canada national flag waving in wind on clear day
Dividend Stocks

RRSP Must-Haves: 2 Canadian Stocks to Secure Your Future

The TSX’s dividend pioneer and first Dividend King are must-haves in an RRSP to ensure financial security in retirement.

Read more »

stock research, analyze data
Dividend Stocks

How Much to Invest to Get $500 in Dividends Every Month

TSX dividend stocks such as Enbridge, TD Bank, and Telus, can help you earn $500 in monthly dividend payments.

Read more »

A solar cell panel generates power in a country mountain landscape.
Energy Stocks

Clean Energy Play: Is Brookfield Renewable a Good Stock for a TFSA?

Add this top renewable energy stock to your self-directed TFSA portfolio for significant long-term and tax-free wealth growth.

Read more »

Golden crown on a red velvet background
Dividend Stocks

Dividend Powerhouses: Canadian Stocks to Fuel Your Portfolio

These two top Canadian dividend aristocrats are some of the top stocks on the TSX to buy now and hold…

Read more »

Dial moving from 4G to 5G
Dividend Stocks

This Undervalued Dividend Stock is Worth Buying Right Now

Want an undervalued dividend stock with long-term potential and a juicy yield? Here's an option you may regret not buying…

Read more »

A worker gives a business presentation.
Dividend Stocks

1 Stock I’m Buying Hand Over Fist in July Despite the Market’s Pessimism

This top dividend stock is going through a rough patch, but don't let that count out all the growth we've…

Read more »

financial freedom sign

2 Stocks With Millionaire-Maker Potential

These two top Canadian stocks are among the best on the TSX, and each has the potential to be millionaire-maker…

Read more »