A Canadian recession may very well be sitting around the corner, but that’s not the only reason to batten down the hatches with a fine defensive stock like grocery giant Loblaw Companies (TSX: L). Indeed, Canada’s top grocers have been under heat amid rampant price increases.
Inflation remains a huge problem for grocery store shoppers
Stop back at the local grocery store, and odds are, you’ll still be shocked at how high your weekly food haul will be. Not to say that grocers have profited from the wave of inflation that hit us over the past few years. But food price increases have the full attention of unhappy shoppers and regulators.
Inflation in Canada has retreated quite a bit from its peak levels. But for grocery store shoppers, it still seems like the pace of price hikes is red hot. Only time will tell when food price inflation is brought under control. For now, it seems like no inflation battle can be won until food inflation is brought under control.
Don’t expect high-price complaints to wither Loblaw’s moat
Loblaw has a pretty mixed reputation amid inflation. On one hand, the firm has had a pretty easy time passing on higher prices to its consumers. Perhaps an odd price hike could fatten its thin margins a tad. On the other hand, however, the firm’s private-label brands have really helped budget-hit consumers get a better bang for their money.
Indeed, it’s quite easy to complain about higher prices over at the local NoFrills or Superstore. However, shoppers continue piling into Loblaw-owned stores, even as photos of outrageous prices of chicken spread rapidly across social media.
Why? Loblaw may have some overly expensive goods, but it still has numerous goods that still offer incredibly competitive prices. Undoubtedly, the prices aren’t high enough such that consumers would flock elsewhere. Loblaw has continued to perform steadily since the pandemic lockdown days.
Grocery code could worsen affordability, says Loblaw
Recently, Loblaw noted it’s a bit worried about a new grocery store code that could cause prices to surge even further. Indeed, such a code may be the wrong way to temper lingering food inflation. For now, Canadian grocers seem like stable plays to ride out a recession and what could be yet another year of elevated food inflation.
Has Loblaw hiked prices on certain goods (think chicken breasts) by more than what’s reasonable? Perhaps. People posting on social media certainly seem to think so. Regardless, I simply do not see customers jumping on over to another grocery store.
At the end of the day, Loblaw is still incredibly competitive on the pricing front with a vast majority of goods it sells. With that in mind, I think it’ll continue to do well as we move into 2024, even if the economy stagnates and inflation remains atop the headlines.
The bottom line on L stock
The stock’s stalled out in recent years. But I think it could be ready to wake up, especially if the next recession hits harder than expected. At 19.5 times trailing price to earnings, with a 1.47% yield, L stock is a wise buy if you’re looking to weather another few stormy quarters for the Canadian economy.
