TORONTO — Loblaw is touting the convenience of its smaller urban stores at a time when rival retailers are getting into home delivery of food and prescription drugs.

Shoppers Drug Mart, Canada’s biggest pharmacy retailer, has opened stores with fresh food offerings in markets such as Regina, Toronto and Vancouver, and the company is much more bullish about offering up apples and ready-made meals at its highly dense urban locations than in suburban ones.

Canada’s downtown markets have a high population density, chief executive Galen Weston told analysts on a conference call to discuss first-quarter financial results on Wednesday, which saw a 20 per cent rise in profit.

Two years ago, Shoppers began renovating some of its stores to include a small grocery section with produce and Loblaw’s Presidents Choice food brand.

“There is a lot of foot traffic walking past them,” Weston said, with customers picking up a meal on the way home or supplementing grocery trips with fruit and vegetables.

“It’s been performing really, really well in the stores where we have deployed it, specifically in the urban markets in Toronto. We are continuously looking for incremental locations to add to that proposition.”

Shoppers has an enhanced fresh food section at 34 locations across Canada. It plans to open 11 more locations in the coming months in Vancouver, where it opened its first outlet with fresh groceries in April. “You should expect that (format) to turn up in a number of cities over time.”

But the company is “not rushing” to roll out Shoppers with fresh food in suburban markets, the CEO said.

“When you move out to the suburbs, the trade-off of going to a small store with less broad offer by driving five minutes, versus driving seven minutes to a bigger supermarket with the full weekly shop available to you, is ultimately what we are struggling with,” Weston said.

While Amazon began selling packaged grocery items in Canada in 2013, Costco has begun offering home delivery of prescriptions ordered online and Walmart Canada began offering home delivery of online groceries in Toronto in March. Loblaw has opted for a “click-and-collect” grocery pickup of online orders at selected stores and Shoppers Drug Mart customers are also able to do online refills of prescriptions that are picked up later at a store. Weston said the retailer is not interested in offering home delivery of online shopping orders at this point.

Loblaw Cos. Ltd. reported net earnings of $230 million, or 57 cents per share, compared with earnings of $193 million (47 cents) in the first quarter of 2016, as the retailer absorbed the sales-flattening impact of food price deflation on its revenue.

Adjusted net earnings per share in the period ended March 25 were 90 cents, beating average analyst estimates of 87 cents, according to Thomson Reuters.

Revenue rose 0.2 per cent to $10.4 million, and same-store sales, an important measure of retail performance stripping out added volume from square footage increases, fell 2.1 per cent at Loblaw stores, excluding gas bar sales.

At Shoppers Drug Mart, same-store sales rose 0.9 per cent overall, with pharmacy sales growing 1.3 per cent and front of the store sales growing 0.6 per cent.

Last week, rival grocer Metro Inc. reported a 10 per cent rise in profit and a 0.3 per cent increase in same-store sales in the quarter ended March 11.

Loblaw said its internal food price index at its food stores was relatively flat in the quarter, compared with quarterly national food price deflation of 3.9 per cent in the period as measured by the Consumer Price Index.

“We would describe Loblaw’s first quarter as positive, as it was moderately better than expected,” analyst Peter Sklar of BMO Capital Markets wrote in a note to clients.

“We attribute the better-than-expected results to strong grocery performance, with slightly better than expected deflation” as the retailer’s margins improved.

The company’s shares fell 33 cents in afternoon trading, to $76.66.

Financial Post

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