May Boycotts: Is Loblaw Stock in Trouble?

Even extreme fluctuations in consumer purchasing patterns may not impact a stock as aggressively as demoralizing actions like boycotts.

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No matter how annoying and frustrating boycotts are (for corporations and other consumers), they are a democratic right of consumers, as well as other entities that may have problems with a publicly traded company’s business practices or stance on specific issues. How impactful boycotts end up being depends upon several factors. How massive they are, the issue they are pursuing and how much limelight it gets, and so on.

With these factors in mind, we may assess the impact of the boycotts grocery and pharmacy giant Loblaw (TSX:L) is experiencing. Due to the nature of its business and timeless nature of two of its major business segments (food and medicine), it may be counted among low-volatility stocks in Canada.

The boycotts

The boycotts against Loblaw are organized and managed by consumers. The idea started online, and the basic premise of the boycott was to avoid buying groceries, or more accurately, non-essentials, from Loblaws and its subsidiaries for the entire month of May. It gained adequate traction, and the news was covered by multiple national outlets/channels. The reason behind the boycott is rising prices.

The first thing to understand is that it isn’t unique. These kinds of boycotts, especially pertaining to prices, are quite common, and when they are substantial enough, they actually make a dent in the company’s finances. But that’s not something we are going to see until the next earnings results are announced.

Is Loblaw stock in trouble?

Loblaw stock has risen by about 2.6% in the last 30 days, and no significant dip has been seen since the beginning of the boycott, which started at the beginning of May. This indicates that even if the company has eroded (partially) its consumers’ trust, there is no impact on investors.

However, this is something that should be taken with a grain of salt because the public owns less than 28% of the company. The rest is owned by private companies and institutions.

One of the reasons why the boycotts have minimal impact, apart from the scale and theme of the boycotts, is the massive scale of Loblaws itself. The company is immense. It has over 2,400 locations across Canada and almost 90% of the country’s population lives within 10 kilometres of a Loblaw location.

They have 18 different brands under their food business segment alone. It also has a loyalty program (PC Optimum) with 18 million members.

This combined reach and loyalty program may prevent the majority of Loblaw consumers from changing their grocery shopping routines and locations.

Foolish takeaway

The true financial impact of the boycotts may be visible in the financial results of this quarter and if they are significant enough, they may cause the stock to dip. Though the gap between now and then may keep that dip to a reasonable size.

So for now, Loblaw stock is not in trouble and you may still consider it for its bull market phase, which pushed its value up over 120% in the last five years.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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