Loblaw Cos. Ltd. L-T saw its profits jump by nearly 40 per cent in the first quarter, even as inflationary pressures have increased costs for retailers and their product suppliers.

Loblaw reported on Wednesday that internal price increases at its grocery stores have tracked slightly higher than the consumer price index. And while the company is seeing shoppers become more price-sensitive – with more propensity to visit discount stores and to resist products at higher price points – the shift has not been dramatic.

“We’re not yet seeing that expected shift that comes when you have plus-6-per-cent inflation for month after month,” chairman and president Galen Weston said. “We think that’s an indication of the consumer having more money in their wallets, still, than they would have had pre-COVID levels. But we’re watching it very carefully, because prices are continuing to grow, consumer behaviour is shifting.”

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As Canadians have been pinched by the rising price of food, Loblaw has seen a shift to its discount stores, such as No Frills and Maxi, which account for roughly 60 per cent of the company’s grocery sales. This change in shopping behaviour has affected sales at its more conventional stores – which include its namesake banner as well as others such as Provigo, Zehrs and Your Independent Grocer – but those outlets still performed well relative to competitors, according to the company.

Shoppers have also been buying more private-label products: Sales of Loblaw’s No Name brand have reached all-time highs, Mr. Weston said. The boost in private-label items is good news for grocers, who make higher profit margins on such products.

Pricing has been a sensitive topic of late, as Loblaw recently made headlines for a high-profile dispute with PepsiCo-owned Frito-Lay. The snack giant stopped shipments to Loblaw-owned stores for two months as negotiations over price increases stalled. That dispute was resolved in April. Many product vendors have been approaching retailers to request increases to the wholesale price they are paid, as costs for labour, transportation, packaging and raw materials have been rising.

Loblaw has a central procurement team that handles those negotiations and evaluates the impact of inflation on the cost of those goods, Mr. Weston said on Wednesday.

“It allows us to negotiate with our vendor base, we believe, with an elevated level of precision. We’ve talked about this before, about putting through real, justifiable cost increases but being very careful about accepting cost increases that are not truly justified.”

Although government-imposed restrictions related to COVID-19 have eased, Canadians continue to eat at home more often than they did before the pandemic. Loblaw executives expect that trend may taper off in the second half of this year.

Sales at the company’s Shoppers Drug Mart chain and other drugstores also increased, driven by pharmacy services such as COVID-19 vaccinations and testing, as well as stronger front-of-store sales. Cosmetics are selling well as people return to the office and have begun socializing more, and over-the-counter drug sales have grown as cold and flu cases have made a comeback.

Drug retail same-store sales – an important metric that tracks sales growth not tied to new store openings – grew by 5.2 per cent in the quarter. Food same-store sales increased by 2.1 per cent.

E-commerce purchases softened somewhat compared with a period of heightened demand in the prior year, when sales more than doubled. Online sales fell by 9.8 per cent in the first quarter.

Net earnings available to common shareholders grew to $437-million, or $1.30 per share in the 12 weeks ending March 26, compared with $313-million, or 90 cents per share in the same period last year.

Loblaw boosted its quarterly dividend to 40.5 cents per common share, up from 36.5 cents, its 11th consecutive annual increase.

The retailer, which is based in Brampton, Ont., reported on Wednesday that its first-quarter revenue grew by 3.3 per cent to $12.3-billion.

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