Solid Execution at Loblaw Persists, but a Lack of Global Scale Precludes a Structural Edge

As Canada’s largest food and pharmacy retailer, Loblaw in theory should be well-equipped to navigate an increasingly competitive market. However, despite its 23.6% share of national food-and-pharmacy sales, we believe it lacks enduring intangible assets or the structural cost advantage of globally scaled price leaders such as Walmart and Costco. We view its strategy of using a multibanner grocery network and Shoppers Drug Mart to capture demand across income levels and healthcare needs as a necessary means of defending relevance and profitability in a market without switching costs, rather than a path to establishing a durable competitive edge.