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Loblaw CEO vows to minimize tariff impact, as analysts expect grocers to pass costs on to consumers

Loblaw, Dollarama seen to be best positioned among food and discretionary retailers amid the trade spat

Analysts expect that Canadian companies would adapt to higher costs of tariffs by hiking prices for consumers, with Loblaw (L.TO) and Dollarama (DOL.TO) best positioned among food and discretionary retailers when it comes to the trade spat. Loblaw's CEO has vowed that the company would take action to minimize the impact of tariffs on consumers.

On Saturday, U.S. President Donald Trump announced he would impose a 25 per cent tariff on non-energy imports from Canada, with a 10 per cent duty on Canadian energy. Late Monday afternoon, Prime Minister Justin Trudeau said the U.S. has agreed to pause tariffs on Canada for at least 30 days while the two countries work together on border-related issues.

The tariffs were supposed to go into effect on Tuesday. Canada had $30 billion worth of retaliatory tariffs on American products set to take effect on the same day, and said it would increase the package by $125 billion in three weeks' time if the U.S. continues to impose tariffs.

National Bank analyst Vishal Shreedhar, who primarily covers Canadian retailers, wrote in a research note to clients on Sunday before the tariff pause was announced that over time, he expects companies would adapt to the higher costs of tariffs, “likely by increasing prices and then by making necessary operational adjustments.”

“Within the staples, we see Loblaw being best positioned to accommodate the challenges given a history of the grocery industry passing on price increases, and a high percentage of discount stores,” he wrote, although he notes that Shoppers Drug Mart may face challenges in certain categories, and political pressure to keep grocery prices low may weigh on the company’s ability to pass along higher costs.

Loblaw CEO Per Bank wrote in a LinkedIn post on Sunday that the company is taking action to minimize the impacts of potential tariffs by securing food grown and made in Canada, and seeking alternatives for U.S. products from places like Mexico. He noted that the cost of living, including the price of food, has been challenging in Canada and that “a trade war would do nothing to make that reality any better on both sides of the border, especially for customers.”

“Economically, we know that tariffs by their very nature are inflationary. Add in the state of the Canadian dollar at the moment, and new tariffs have the potential to put significant pressure on costs, which will ultimately impact consumers directly,” Bank wrote.

Shreedhar expects that Canadian grocers – including Metro (MRU.TO) and Empire (EMP-A.TO) – would deal with the challenge posed by tariffs as well as the deteriorating Canadian dollar by passing inflation on to consumers. He writes that Loblaw, which has about 50 per cent of its food store count in discount brands, and Metro, which has about 40 per cent discount stores, are better positioned than Empire, which has just 10 per cent of its store count in discount.

RBC analyst Irene Nattel reiterates Loblaw and Dollarama as top picks, writing in a note to clients on Sunday that the currency and broader economic impact of tariffs would reinforce value-seeking behaviour among consumers. She says produce sales typically account for 20 per cent of annual sales at grocery retailers. For most of the year, produce is sourced outside of Canada, priced in U.S. dollars, and then sold in stores at the Canadian dollar equivalent.

“The weaker [Canadian dollar] that could result from the imposition of tariffs will likely be inflationary just at a time when food price inflation has been normalizing from the peaks of 2022/23,” Nattel wrote.

“Add the anticipated negative impact on employment and GDP, and already value-focused consumers are likely to continue to favour discount banners/channels and for trade-down and promotional penetration to intensify.”

Both Nattel and Shreedhar say Dollarama is also well positioned to withstand tariff uncertainty, given the brand’s strong discount offering.

“History has shown that it typically passes [on] price increases, and its position as a value retailer could be increasingly coveted by the consumer,” Shreedhar wrote.

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