Can Loblaw Companies Ltd. and Metro, Inc. Bite Back Against Amazon.com, Inc.’s E-Commerce Experiment?

Death of Canadian grocery giants Loblaw Companies Ltd. (TSX:L) and Metro, Inc. (TSX:MRU) may be greatly exaggerated.

grocery store

Shares of Loblaw Companies Ltd. (TSX: L) and Metro, Inc. (TSX: MRU) have been hit hard since Amazon.com, Inc. (NASDAQ: AMZN) announced its purchase of Whole Foods Market Inc. Loblaw and Metro have fallen 7% and 5%, respectively, in the past month.

But should these two Canadian grocery giants be worried about Amazon’s business model devouring them the same way it has other retailers?

According to David Pierson of the Los Angeles Times; CB Insights, a venture capital database, reported that grocery delivery companies have raised $713 million in worldwide funding through May. This puts it on track to exceed the $1.4 billion raised in 2016. Amazon’s purchase of Whole Foods serves the purpose of gaining its own infrastructure to reduce the massive investment required to store perishable goods and have them replenished on a regular basis.

Analysis by now-defunct mobile grocer Webvan demonstrated that consumers may not be so willing to outsource the essential purchase of their food. Analysts at HSBC showed that customers doing their grocery shopping care more about low pricing than they do convenience.

In Q1 2017, Loblaw reported a $20 million increase in revenue from the same quarter in 2016. The company announced an increase in its dividend to $0.27 per share. The stock has provided a year-over-year return of 4%, and it has experienced a marginal increase of 0.28% in 2017. It closed at $71.04 on Monday, up 0.20%.

Metro announced its Q2 earnings in late April. The company reported net earnings of $132.4 million, up 6%, and declared a dividend of $0.16 per share, up 16%. The share price is up 5.75% in 2017 and closed at $42.47 on Monday, down 0.16%.

Loblaw offers a “Click and Collect” online service for customers, and Metro has a similar option on its website. These services allow Canadian shoppers to reduce time in stores.

The immediate reaction to Amazon’s move indicated that there was a sense of inevitability to grocery services going entirely online in the same way that other retail services have. Recent history tells us that tech’s foray into the grocery industry may be its toughest challenge yet.

Large barriers still exist in consumer comfort with such a model, and companies like Loblaw and Metro have managed to put forth alternatives that grant consumer convenience with the same pricing.

Strong results for both companies have seen gains wiped out by investor unease. However, the tech giant still has large obstacles to face in this industry before these companies are under any serious threat.

Fool contributor Ambrose O'Callaghan has no position in any stocks mentioned. David Gardner owns shares of Amazon and Whole Foods Market. Tom Gardner owns shares of Whole Foods Market. The Motley Fool owns shares of Amazon and Whole Foods Market.

More on Investing

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Use a TFSA to Generate $400 in Monthly Tax-Free Income

Want to earn $400 a month tax free in your TFSA? See how Timbercreek Financial and Diversified Royalty could get…

Read more »

some investments are riskier than others
Dividend Stocks

Annual Dividends: BCE Pays $1.75 a Share and Telus pays $0.75. Which Is the Safer Income Stock?

BCE and Telus offer similar yields after dividend cuts. Compare their annual dividends, cash flow and debt to assess the…

Read more »

Piggy bank and Canadian coins
Dividend Stocks

Investing With a Small Budget in an Uncertain 2027

A pair of ETFs are excellent options for Canadians with small budgets seeking to invest amid an uncertain market.

Read more »

hand stacks coins
Dividend Stocks

How I’d Build Towards $400 a Month in Income Across 3 Canadian Stocks

Three Canadian businesses show the capital, purchases, and patience behind a $400 monthly income goal.

Read more »

Financial analyst reviews numbers and charts on a screen
Investing

Tech Stocks Are Sliding: Does Shopify Still Belong in Your Long-Term Portfolio?

Shopify (TSX:SHOP) stock has been taking a hit as AI and tech retreats, but the decline might be a golden…

Read more »

monthly calendar with clock
Dividend Stocks

The 4.1% Dividend Stock That Could Pay Retirees Cash Every 30 Days

This top TSX dividend stock could pay retirees cash every 30 days throughout their sunset years.

Read more »

A chip in a circuit board says "AI"
Tech Stocks

Celestica Stock: Is AI Growth Worth the Risk in a Retirement Portfolio?

Celestica offers retirement growth potential, with a cash-flow trade-off that deserves more attention than sales alone.

Read more »

how to save money
Energy Stocks

How Much to Invest in Canadian Natural Resources for $200 a Quarter in Dividends

Learn how Canadian Natural Resources stock is affected by oil price corrections and recent US political developments.

Read more »