Many investors who go to their local grocery store owned by parent company Loblaw Companies (TSX:L) and see empty shelves in this pandemic may be tempted to go out and buy some shares in a bid to get defensive in this terrible stock market.
I’m going to discuss in this article why I think that could potentially be a dangerous idea.
The first thing I’d note is that Loblaw just recently reported earnings mid-March which missed expectations. This result surprised some but did not particularly surprise me. The company operates in a low-margin business with little in the way of true innovation in decades. In my view, this situation is simply waiting to be disrupted.
My take on the coronavirus pandemic with respect to traditional grocery players is that disruption in the grocery retail space is going to result from our current situation. Folks that may not have otherwise tried home delivery will.
The reality is that Amazon (NASDAQ:AMZN) and Wal-Mart (NYSE:WMT) and other U.S. retailers are way ahead of the curve on this trend. They have the ability to crush traditional big box Canadian retailers like Loblaw.
Instead of this being a slow and gradual process, however, I believe that this coronavirus pandemic will essentially accelerate the rate of change in grocery retail toward e-commerce, proving to many investors out there that companies like Loblaw need to innovate or die.
Invest wisely, my friends.