Good morning, ladies and gentlemen, welcome to the Loblaw Companies Limited first quarter 2023 results conference call. At this time, all lines in a listen-only mode. Following the presentation, we'll conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, May 3rd, 2023. I would now like to turn the conference over to Roy MacDonald. Please go ahead.
Great. Thanks very much, Julie. Good morning, everybody. Welcome to the Loblaw Companies Limited first quarter 2023 results call. This morning, I'm joined, as usual, by Galen Weston, our Chairman and President, and Richard Dufresne, our Chief Financial Officer. Before we begin this morning, I wanna remind you that today's discussion will include forward-looking statements, which may include, but are not limited to, statements with respect to Loblaw's anticipated future results. These statements are based on assumptions and reflect management's current expectations. As such, are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations. These risks and uncertainties are discussed in the company's materials filed with the Canadian Securities Administrators. Any forward-looking statements speak only as of the date they're made.
The company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future results or otherwise, other than what's required by law. Certain non-GAAP financial measures may be discussed or referred to, so please refer to our annual report and other materials filed with the Canadian Securities Regulators for a reconciliation of each of these measures. I will turn the call over to Richard.
Thank you, Roy. Good morning, everyone. I'm pleased to report that we started 2023 building on the strength of last year. We continue to deliver consistent operational and financial results with solid top-line performance and strong earnings growth. We remain focused on delivering value to consumers and carefully managing our expenses, all part of retail excellence. On a consolidated basis, revenue grew by 6% and EBITDA increased by 7.8%. Adjusted earnings per share grew by 14% to CAD 1.55 a share. As a reminder, we are lapping a very strong Q1 last year, where food same store sales growth outperformed, gross margin grew by 80 basis points, and EPS grew 20.4%. On a GAAP basis, our earnings per share reflected a 0.8% decline as we lapped one-time gains last year.
In drug retail, absolute sales increased 10.7%, and same store sales grew 7.4%, lapping an increase of 5.2% last year. Front store same store sales grew by 10.3%. As continued strong demand growth in margin-accretive categories like cosmetics and HABA. OTC performance remained strong but off its peak. Pharmacy same store sales grew 4.7%, driven by growth in acute and chronic scripts, partially offset by lower COVID vaccines and testing. Overall, we are encouraged by the steady and strong pace of growth in pharmacy services. These services represent an exciting new business for Loblaw, and we continue to expect them to drive long-term growth. Looking ahead, after lapping pandemic headwinds in pharmacy in Q1, we should see a return to more normal front store growth rates going forward.
In food retail, absolute sales increased 3.8% and same store sales grew 3.1% and reflect 110 basis points timing impact of Q1 this year, starting on January 1st when most of our food stores were closed, versus a January 2nd start last year. In Q1, our internal food inflation number was generally in line with CPI. right-hand side remains a drag on our same store sales performance to the tune of 60 basis points in the quarter. Omicron last year was a key driver of our same store sales number. Our hard discount banners continue to outperform the overall discount channel, delivering strong traffic and item count growth as customers continue to focus on value offerings. In Quebec, our discount position continues to grow. We converted one Provigo store to Maxi at the end of the quarter.
Two more have opened since, and we will convert at 8 additional stores in Q2. We continue to deliver outside sales performance in these Maxi conversions, and we are particularly excited by the traction of our Maxi banner in the Quebec market. Our market banners are also performing well and continue to outperform their peer group. Having the right customer offer in all of our stores remain a key focus. As I mentioned, our right-hand side had a negative impact on same store sales of 60 basis points. This improved from Q4 as apparel sales growth was strong and HH&NE was only slightly negative this quarter. We remain comfortable with our inventory levels. Our private label brands continue to outperform national brand, growing sales more than twice the rate of national brands. No Name continued to resonate well with Canadians, delivering strong double-digit sales growth in the quarter.
Online sales in the quarter decreased 1.1%, lapping elevated demand last year due to pandemic-related restrictions. We are pleased to see sequential improvement in our online sales penetration over the past three quarters, currently sitting at the highest level since Q1 of last year. Retail gross margin was 31.3%, up 20 basis points compared to last year. Gross margin benefited from growth in high-margin front store categories in drug retail and our retail excellence-related initiatives, offsetting higher shrink. We recorded a slight decrease in food retail margin as costs continued to rise faster than sales. We are continuing to see elevated cost increase from our food suppliers. This includes small and medium-sized Canadian vendors catching up on costs, and we're doing our best to expedite those.
More concerning, we're still seeing outsized cost increases rolling in from large global consumer goods companies, exceeding what we would be expecting at this point. Year-to-date, suppliers have increased our product cost nearly $1 billion, which is down from last year at this time, but more than double the annual historic norm. Another careful quarter of cost management resulted in an improvement of 10 basis points in our SG&A rate as a percentage of sales. Adjusted retail EBITDA increased by $105 million or 8.2% in the quarter, yielding a margin of 10.9%, up 20 basis points compared to last year. PC Financial's earnings before tax declined by $20 million, largely a function of an increase in the credit loss provision this year compared to a release in the comparative quarter.
The core business performance remains in line with our expectations, with revenue up CAD 52 million, driven by higher interest income and an increase in consumer spending. On a consolidated basis, sorry, adjusted EBITDA margin was 11.1% in the quarter, up 10 basis points compared to last year. Our retail cash flow was negative CAD 81 million in Q1, reflecting higher CapEx spend and lapping a one-time tax recovery from last year. In the quarter, we repurchased CAD 383 million worth of common shares. Looking ahead, we remain confident in our plan and our ability to execute in our core businesses while advancing our growth initiatives. Our focus over the past two years remains on retail excellence, and it's been evident as we've delivered steady and consistent performance each quarter.
This focus will continue to benefit our business going forward. I will now turn the call over to Galen.
Thank you, Richard. Good morning. I was pleased with our performance in the quarter, particularly as we lapped pandemic tailwinds from Q1 2022. As we work hard to deliver value to our customers in the face of persistent cost inflation, we saw good underlying momentum and strong overall results. It was nice to see a recent poll showing Canadians view Loblaw as the grocer doing the most to help with inflation. Shoppers Drug Mart had another standout quarter with high-margin beauty and cough and cold sales continuing to drive our retail gross margin results. COVID-related vaccinations and testing declined year-over-year, while other pharmacy services like medication reviews and minor ailment prescribing grew rapidly as pharmacists continue to step up and improve access to high-quality primary care across the country wherever provincial regulations allow.
In our food business, we stayed laser-focused on delivering value to customers. Canada is now one of the few OECD countries that has seen food inflation moderate in recent months. Once again, we did not pass the full amount of cost inflation to customers, leading to food gross margin declines yet again this quarter. Our approach continues to work. Market stores outperformed peers. Our discount division grew share through more traffic and bigger baskets. Engagement in PC Optimum loyalty rose substantially, and President's Choice and No Name grew at more than twice the pace of the big national brands. With Q1 behind us, we're comfortable with our position.
Looking forward, we will invest more than CAD 2 billion into the economy, creating thousands of jobs, adding discount supermarkets in underserved regions, expanding our T&T supermarket chain, and continuing to open pharmacist-led clinics with plans to add more than 70 new points of primary care for patients in Alberta, Ontario, Nova Scotia, New Brunswick and PEI. As our business advances, so too do our ESG commitments, fighting climate change and advancing social equity. Our latest ESG report outlining our progress is now available at loblaw.ca. It does an excellent job of demonstrating the many ways our purpose comes to life through a more inclusive workforce, a pledge to feed and care for families, and the belief that we can substantially reduce our environmental footprint by making the right choices. I hope you'll get a chance to take a look.
Looking forward, we will continue to execute well against our purpose of helping Canadians live life well, doing so while operating a successful business and delivering reasonable financial results. I'll now open the call for questions.
Thank you, Galen.
Thank you.
Go ahead, Julie, and introduce the Q&A process.
Thank you. Ladies and gentlemen, should you have a question, please press the star followed by the one on your touch-tone phone. If you would like to withdraw your question, please press the star followed by the two. One moment, please, for your first question. Your first question comes from George Doumet from Scotiabank. Please go ahead.
Yeah. Good morning, Galen and Richard. Can you maybe talk a little bit about the performance of your market banners in Quebec and Ontario, maybe from a market share standpoint? Would you characterize the environment there as maybe more competitive than in the last few quarters?
Yeah. Let me give you a little bit of perspective. We try not to give too much detail on the sort of regional breakdown of performance. You know, from a total business perspective, the market division continued to outperform, you know, their peer group. We're obviously reducing the number of Provigo stores that we have in Quebec. We're very pleased with the underlying performance, you know, of the conventional business there. I'd say from a market competitiveness perspective, you know, it is very competitive everywhere right now, continues to be very rational, you know, but increasingly promotional and people are putting their best, you know, value forward, you know, to support consumers, and we're doing absolutely the same thing.
I wouldn't, you know, call out Quebec as particularly, more competitive than any others.
Yeah, thanks for that. Thanks for the earlier comments on, I guess, the pricing requests to magnitude. I found the larger CPG ask pretty interesting. Can you maybe talk to what the justification maybe from them is for the higher pricing? Just generally speaking, what areas of the store do you think could see the highest price increases, maybe as we go into the spring and summer?
Yeah, look, I think, you know, those are important, you know, confidential conversations. We wanted to call it out, you know, because it is one of the big drivers of cost inflation that we are seeing. You also heard Richard mention, you know, the small Canadian, you know, and mid-size manufacturers who are kind of catching up, you know, you know, to the inflationary costs. Yeah, we are definitely seeing more inflationary cost pressure from the large multinational CPGs than we would have expected at this time based on, you know, what's happening in the commodity cost environment.
Yeah. Any area of the store that you think you might see the most, the highest inflation, Galen, if you can share that comment, maybe?
Not really. I mean.
Okay.
Remember, in the fresh departments, you know, costs move up and down very quickly, you know, on a week-to-week basis. In the center of the store, there's just so many different categories, it'd be tough to generalize.
Got it. Just one last one, if I may, maybe for Richard. I understand that there's an expectation to hold to slightly expand gross margins this year. Can you maybe help us understand the cadence maybe of those improvements? I guess it'll be more difficult in the second half, but any comment you can share on kind of the evolution in gross margin? Thanks.
Well, we commented, George, that we're expecting gross margin to be stable during the year, and we continue to feel confident in our ability to do that for the next three quarters.
Okay, thanks.
Your next question comes from Irene Nattel from RBC Capital Markets. Please go ahead.
Thanks. Good morning. If you could please, update on what you're seeing in terms of consumer behavior, you know, sensitivity promotions, trade down, all of that kind of thing?
Yeah, Irene, I feel like you ask that question every quarter, and.
I do.
In preparation for this call, I always try and find something, you know, new or different to add. I'm afraid I can't do that this time around. It's really the same stuff, same trends as previous quarters. You know, we continue to observe that shift to discount. That'll be no surprise to you. We've commented on the growth of private label. You know, there's no signs of that slowing down. I touched on that increased promotional intensity. You know, that is continuing to build, but it's worth noting, that we're still not back at the levels of promotional penetration that we saw in 2019, so there's still some distance to travel there.
You know, the one, you know, call-out, I think I mentioned this, you know, a couple of quarters ago. We still see a really not surprising, but really robust strength in the fresh prepared meals category. You know, what we think we're seeing here is customers who are trading out of a restaurant meal, you know, into slightly higher cost but incredibly good value, you know, high quality fresh food option available, particularly in our market division stores.
That's very helpful. Thank you. Yeah, I do ask every quarter. Just following on with the private label. You already have, you know, industry-leading private label penetration. As you see private label growing, is it sort of consumers buying more categories? Like, where exactly are you seeing it, and can you update us on the actual private label penetration?
I don't know if we disclose our actual private label penetration, but it won't be any surprise to know that the big source of growth in our private label program today and has really been the case for the last six months, has been in the No Name brand, and that's people trading into value. I think we're very fortunate because, you know, we invested a lot in the quality of the No Name formulations over the last four or five years. I think what's happening here is customers are buying the product. They're realizing that they're not making a quality trade-down, and they're saving a great deal of money. They're sustaining, you know, their purchasing behavior.
We're optimistic, you know, that even as inflation moderates and perhaps consumers get a bit less price sensitive, you know, a lot of that penetration, you know, will remain.
Thank you. Then just a last one from me, shifting gears a little bit. Want to understand the commentary around you said you're gonna add 70 points of primary care across Canada. Are these the pharmacist-staffed, sort of consultation offices? Like, you know, can you tell us what you're seeing there and how those are working for you?
It's a combination of specific, off-site, independent locations. Think about them as medical clinics that are operated by pharmacists. Another portion of that 70 is actually, you know, creating dedicated space inside pharmacies themselves for pharmacists to provide a similar, you know, level of dedicated care. We have 10 of these clinics operating across the country, primarily in Alberta right now. We are very, very pleased with their performance. You know, broadly speaking, you know, what the Canadian consumer is, you know, making a decision to get primary care service, you know, from a pharmacy for a minor ailment and a diagnosis and prescription.
It's taking them, you know, 1 hour, okay? To go from the appointment to walking out with a treatment. You know, that could be compared, you know, to having to book an appointment with your GP and having to wait maybe one week to get an appointment and then get a prescription and then be treated. The improvement in access, you know, as a result of this expanded scope for the everyday Canadian is quite remarkable and something that we think will, you know, continue to make a really positive impact on the country from an access to care perspective.
That's really helpful. Thank you.
Your next question comes from the line of Michael Van Aelst from TD. Please go ahead.
Hi. Thank you, and good morning. I wanna start with the price increases that you were talking about. Last year had multiple increases kinda steadily throughout the year. This year, do you expect it to be the same, or do you expect to see more front-end weighted, like more weighted to the Q1 increases you've already seen?
We don't know, Michael. Like, the way we just tally the cost increase request as they come in. As I was saying in my remarks so far this year, the number is lower than what we got last year, but it's still more than double what we were getting prior to the pandemic. When we look at what's happening with the commodity price environment, like, we're still surprised to see these big numbers, but they're still coming in. Inflation is definitely going down, but it's not going down as fast as we thought. That's. I can't predict the future, Mike.
Okay. The CAD 1 billion in product cost increase, Was that all in Q1, or is that up until today?
That's year to date. We quoted a year to date number because we track that number every week, okay? The number that we're typically getting prior to the pandemic was around CAD 400 million, okay? On an annual basis. Last year, in 2022, the number was north of CAD 2 billion. We're already at CAD 1 billion year to date. It's lower than where we were last year, so we're definitely heading in the right direction, but it's still quite high.
The CAD 2 billion number last year, or over CAD 2 billion last year, that was for the full year? That wasn't year to date, right?
That was for the full year, yes.
Okay. That's helpful. As far as the indication that you're seeing for like the ones that have been already approved and coming through in the next few months, is that, are there still a lot of that, a number of those or?...
You've got all our numbers. We just shared you all our numbers. You've got everything year to date, Mike. That's it.
Got it. Okay. Thank you. Then, you know, the 14% EPS growth was quite strong. You did that despite the financial services pre-tax profit declining CAD 20 million. You had flat financial services EBITDA. Can you just walk us through the changes below the EBITDA line?
Yeah. Essentially, in the bank though, as we've written in the press release and in my remarks, is the core performance of the bank continues to do, to be well. Like, spending is increasing, so that's definitely helping. It's the movement in what we call ECL, which is Expected Credit Losses, which are reserves that are dictated by OSFI, and that are. It's essentially a mathematical formula. Last year, we were releasing reserves, and this year we are increasing reserves, and that delta is what is essentially the driver of the drop in CAD 20 million in earnings before tax. If it weren't for that, our earnings per share would have been up another 4%.
You called out, I think a five-minute CAD 1 million reversal last year and a CAD 6 million provision this year. That's a CAD 11 million swing. Was that not included in EBITDA then?
It's all. We look at it only at the earnings before tax. That's how we look at it at the bank. The bank is a bit different than when we look at our food business. It's all in there because they're stuffing interest expense because of how they fund themselves, it's a little bit more complicated. I could walk you through this offline, Mike, if you want.
Okay. Yeah, that would be helpful. The changes that have been made so far on that's bringing the market, the reserves up to date with the current economic expectations for the remainder of the year. Should we assume that year-over-year impact isn't as meaningful if the economic conditions do not change?
It's tough to predict. It's tough to predict, Mike, but it should converge back to normal as the year progresses.
Okay. Thank you. Just finally, the RX services, the volume in pharmacy was down 1.9%. Does this include the services component?
Yes. Yes. That's a prescription. Yes. It counts as a prescription. Yes.
Sorry, what was the services, the change in the services?
Services are down year-over-year. That was our plan, by the way, because COVID testing and COVID vaccines were so strong last year. We're quite pleased with the performance of other services such as flu, med reviews, and other, which expanded scope of care falls into. That is offsetting somewhat what's happening with COVID. We won't be covering all of the COVID stuff. Like, our plan is for services to be a bit down this year towards last year, the growth in other stuff is still quite significant.
All right. Thank you, Richard.
Your next question comes from Mark Petrie from CIBC. Please go ahead.
Yeah, thanks. Good morning. The SG&A increase seemed to moderate a little bit from what we've seen the last couple of quarters. I know you've spoken about your work to look for cost efficiencies, but hoping you can just expand a little bit on those initiatives. I don't know if you can give an example. Also, could you just talk about the labor market, what you're experiencing today in terms of wage rate inflation, or perhaps what type of increases you're agreeing to in your most recent union contracts?
On SG&A, Mark, you and I have discussed this at length a few times already this year. Like we did most of our work last year to get ready for this year. That is we are executing on our, on our plan so that we can limit the growth of SG&A expense to a number that will allow us to deliver on our financial framework. We're already working right now on the plan for next year on that. That's more of the same. Labor, there's still a lot of issues with labor, like turnover in our stores continues to run really high. We're happy to see that in certain areas of our business, it's improving. Like, for example, drivers, we no longer have any issue sourcing drivers.
We're having more success finding people to work in our DCs. Definitely we're seeing improvement even in store support, which is head office, where we've been able to fill a lot of the vacancies we were looking for. The environment is improving. We're still not out of the woods yet.
Maybe just one thing that I would add is that, you know, with the inflation-adjusted minimum wage, which exists across most of the country now, you know, we are seeing store labor pressure on the wage line. When it comes to the labor negotiations that we are having, we've successfully agreed and ratified a number of agreements, you know, over the last number of months. I think we said this before, they are at the high end of what we would consider to be a normal range if you net, you know, the inflation-adjusted minimum wage.
Okay. Helpful. Thank you. Galen, I also wanted to follow up on your comments with regards to prepared food and I think, you know, the dynamics you're describing make a lot of sense. I'm just hoping you can talk about your efforts specifically there. I know, for instance, you know, there was a meal kit business that was sort of changed or dropped a couple of years ago, but I'm just curious if you see any other opportunities to accelerate your role in prepared meals, either, you know, with renewed programs or perhaps some structural changes just in terms of how you bring those offers to market.
Yeah. The meal kit business, you know, in the, in the form that you would be thinking of, you know, we were not able to make it work effectively. We couldn't make it work on a delivery basis, and we struggled to make it work from an in-store, you know, pickup basis. Where we've seen really extraordinary results is in the stores in what we call the Mealtime Marketplace. That's a series of products. It's oven-ready, fresh, you know, product. I think you've seen it. You know, it's a side of salmon, you know, in a tinfoil, you know, tray with lemon, with parsley, with butter. You just throw it into the oven and, you know, it's a fresh, very, very simple meal.
We have, you know, seven or eight different recipes for programs like that. We also have pre-cooked, you know, programs as part of the Mealtime Marketplace. What we've been doing is we've been actively expanding that combined program, you know, to an increasing number of stores outside what you would consider to be the regular, you know, urban markets. We're seeing sustained success. After years of trying to figure out what's the formula that consumers will embrace here, you know, we think we've got something that's really good.
The second place that we're investing in and seeing really great responses is in what we call sort of the Pana Fresco value proposition, which was born out of Fortinos. Bathurst and Lakeshore has, you know, the full pod concept of Pana Fresco. What we're beginning to do now is we're taking specific pods out of that Pana Fresco, like, say, the pizza program or the soup program, and we're deploying it in an increasing number of stores with lower capital investment. Those would be the two places that we have the highest level of enthusiasm and optimism. One is reasonably capital-intensive, the other is really just about, you know, rolling out the product program.
Okay. Thanks for that. And are any of those programs available through, like, third-party delivery providers?
Yeah. Pana Fresco, I believe, is available through third-party delivery. We have a couple of programs in stores in downtown Toronto that are also available through the delivery marketplaces. It's not a big driver of, you know, the overall business in those fresh prepared meals.
Yeah, sure. Understood. Okay. Just last one, Richard. Any comment with regards to sort of the right-hand side of the store and the trajectory of that in Q2 to date? I think Q1 was a little bit more of a modest drag, and just curious how we should think about the performance for Q2? Thanks.
Yeah. I right now expect more and more of the same, like, we're all expecting to get warm weather, like, we had a weekend three weeks ago. I don't know what happened since, so we need a bit nicer temperatures to get a few of these things going, but other than that, nothing unusual.
Okay. Appreciate the comments. All the best.
Your next question comes from Peter Sklar from BMO Capital Markets. Please go ahead.
Good morning. I just wanted to discuss the 3.1% same store sales you experienced in food. When you were talking about that, like I understand the 110 basis points 'cause you have that day closure related to New Year's, and I understand the 60 basis points related to the right hand side. You still had, you know, 10%-11% inflationary tailwind. I know, Galen, you're really skeptical of this discussion. I think you call it street math. Putting that aside, it implies that, you know, you lost some traffic. Traffic was down or baskets were smaller. On the other hand, you're saying that, in your commentary today, you did gain share in your market divisions and in your discount banners.
I'm just wondering if you could kind of wrap all that up and reconcile those statements?
Let's start with market share to be precise. Okay? Market share is up in discount, okay? In market, the conventional channel is down, and we're doing better than the channel. Okay? Our market share in market is down, but it's down less than our peers. That's exactly what's going on. To get to your question on same store sales, obviously, you need also to look at the stacked math, okay? Because we actually did pretty well last year in Q1. If you add that together versus what we've seen from peers, we actually have decent numbers. What really happened here, okay? I think what really happened, and people need to appreciate, though, is we were in lockdown last year because of Omicron, okay?
In lockdown, food retail does better because we're stuck home and drug retail does worse for the same reason. If you look at our same store sale performance in each of the three months of Q1, we started same store sale in P1 at around 0%, okay? In P2, we were around 4%, and we finished, like, around 6%, okay, in P3. And we said inflation, say, was around 10% for the whole quarter, okay? It was higher in P1 and lower in P3. If you look at Omicron, like, which everybody was stuck home for sure, like, for sure, there's less tonnage because we were not locked home this quarter.
If you look as we exit the quarter, okay, with inflation a bit lower than the whole quarter and same-store sale much higher than our number, like the street math starts to come into place a little bit better, and it starts to be a little bit closer to how we were commenting on our business at the end of the year. We were commenting that discount was essentially flat, and that's what we're seeing as we exit the quarter and market is down a bit. Yes, street math doesn't work when you look at absolute numbers, but when you look at the business on how it's been trading during the quarter, it's actually quite rational.
Okay. That's a good explanation. Thank you.
Your next question comes from Chris Li from Desjardins. Please go ahead.
Hi. Good morning, everyone. Maybe just start a couple of ones on Shoppers. You mentioned that, you know, front store sales are returning more to normal levels. Does that mean that we should also expect gross margin to start to stabilize as well since, you know, it has grown very strongly in the past few quarters? Maybe related to that, are you seeing any notable slowdown in beauty as the consumer starts to feel more pressure? Thank you.
Front store continues to do quite well, better than planned. Margin continues to do well. Like, we keep being surprised with cough and cold. Like, you remember the story about cough and cold being strong throughout last year. It's off its peak. It's definitely off its peak, but it's still running high, and that's a high-margin business. We're always thinking that it's gonna end anytime soon, but it's not. That's something that we worry a bit about. Maybe it's gonna revert back to normal, but it's not. That's definitely helping.
Having said that, I think what's important to appreciate from Shoppers perspective, especially on front of store, is that Shoppers last year because of Omicron, as I was mentioning earlier, was doing worse. It's doing really well in Q1. It has very strong comp performance. As the year progresses, we're gonna see comp go back to more normal growth levels, which is what we have in our plan. That's fine. We feel we're gonna continue to have very good margin performance in the business, and so we should be able to continue to deliver. That's how you should see it, Chris. We feel good about where Shoppers is right now and how it's positioned for the next few quarters.
That's helpful. The beauty business in particular, is that still holding up very well?
Yeah, it's holding up. It's holding up nicely.
Perfect. Maybe just another one on Shoppers. I mean, there's no question, you know, the pharmacy services revenues, there's a lot of long-term upside. I'm just, you know, curious to ask, you know, when will you be in a position to perhaps put some numbers around the longer term revenue opportunities from the expanded scope of practice for pharmacists?
Not for a while. I mean, I think I have shared this, you know, before.
You know, this is a, it's gonna be an attractive, very meaningful, you know, part of the business. You shouldn't think about it as a transformational, you know, growth driver for the Shoppers Drug Mart business. You should see it as a, you know, as a productive complement, you know, to the core business performance, you know, that we've been delivering over the last few years.
Okay. Thanks for that. Again, maybe just switching gears to food for a second. You know, even though inflationary pressures will likely ease in the second half, you know, prices are obviously still meaningfully higher than they were a year ago and we might be in a recession. I guess my question is, just based on your experience, I mean, how sticky are the shoppers once they have shifted to discount? Are they gonna be there for longer before switching back to markets, even though prices may be stabilizing?
It's a really good question. I'm not sure we know yet. I mean, I was looking at some data this morning that showed a drop in the cross-shop rate, you know, for example, in P1 this year, an increase in, you know, the performance of the discount business. That would suggest that, you know, customers are, you know, increasingly dedicated, you know, to a single format shop, which would be worrying for, you know, our conventional channel. In the subsequent periods, we saw that normalize again, and we saw that cross-shop rate continue to grow. We looked back the year before and we saw that that drop seems to be specific to that P1 sort of post-January level.
The expectation I think we should have is that there will be a normalization. The broader context though, I've said this also before, is that in the decade prior to COVID, we have seen virtually all of the, of the growth, coming from the discount channel, largely because that's where all of the competitors, ourselves included, were adding new stores.
Okay. That's helpful. Maybe just a quick last quick one on e-commerce. You mentioned that e-commerce penetration was back to the level it was in Q1 a year ago. Just curious to see if you can share with us what is the e-commerce penetration number? Secondly, no one has a crystal ball, but, you know, curious to get your view on where you see online penetration going over the next two to three years?
Yeah. Do I don't know if, yeah, so Richard's giving me the signal. We're about 5% in terms of e-commerce penetration in food. Predicting what the sort of normalized growth rate for food e-commerce is ultimately gonna be still an open question. You know, but as Richard pointed out, we are beginning to see, you know, a growth rate. Certainly, you know, the high inflationary environment, you know, is putting some pressure on online delivery because it's a more costly channel. So, you know, it'll probably stay, I'm guessing it's gonna stay moderated, you know, during, you know, the peak of this recession.
Great. Okay. Thanks very much.
Ladies and gentlemen, as a reminder, should you have a question, please press the star followed by the one. Your next question comes from Vishal Shreedhar from National Bank. Please go ahead.
Hi. Thanks for taking my questions. With respect to the Choice Property sales, was there a gain in the quarter? If so, did it benefit EBITDA in the retail segment and how much?
Not material, Vishal.
Okay. In the notes, it says $19 million gain related to the Choice. Was that reflected?
I thought it was nine, but yeah, maybe that's the right number. I thought the gain was CAD 9, but that would be in our numbers. Like we're selling a little bit more real estate now, but we've always had those little gains throughout the years though. It's not what's driving the business now.
I see. When you reflected on your outlook for the year, did you reflect on the gains associated with those real estate transactions to fall to the bottom line and that's reflected in your-?
No.
Okay. Okay. Thanks for that. With switching here to the RX business. The actual price increase in prescription, that includes services 'cause it was larger than usual this quarter.
Yeah, it includes services.
Okay. Is that the run rate that we should assume for the year? Or is there some peculiarity because of the COVID on a year-over-year comp?
I don't think there's any peculiarity, Vishal. I can check, but I don't see any.
Okay. Okay. Just changing topics, once again, I was hoping you could reconcile something for me. You know, just looking and observing restaurants, they seem to be noting in general good trends, seemingly positive tonnage. You know, the grocers, and I know there's peculiarities just associated with restrictions, but the grocers seem to be reporting, you know, negative tonnage, at least on the street count that we have. Wondering if that's something that management is looking at or has observed, and if so, do you expect that trend to revert where there's increasing people going back to grocery stores?
I mean, look, I think first and foremost, it's very, very hard to glean much from the year-over-year tonnage performance numbers because of all of this COVID disruption. For our tonnage went way up during COVID, the restaurant tonnage went way down and, you know, we still have that lapping effect inside of everybody's numbers. It just creates confusion and lack of clarity. But definitely the restaurant business is robust right now, you know, despite that, you know, the inflationary pressures and despite, you know, the economic uncertainty.
My guess is that the primary reason for that is that we do have a bifurcated consumer, you know, consumers who still have, you know, robust disposable income, and then those who are under, you know, severe, economic constraints. All I can tell you is that in our case, you know, we are seeing people make some kind of a value choice, you know, by spending more money buying value-added food than, you know, than we've seen in the past. Our explanation for that is that, you know, people are trading a restaurant meal, you know, during the week for those products.
Maybe it's not a fair question to ask given what you've just said, the reason why I was asking is it reasonable, like, is the restaurant industry as a whole gaining market share, in, from grocers and taking away eating occasions? If so, do we expect that similarly to revert?
Yeah. You're asking if there's a share of stomach, you know, trade here that could benefit the grocery industry at some point. It certainly has historically. You know, there has tended to be a, you know, a benefit, you know, to grocers as restaurant business, ebbed, and some pressure as the restaurant business flowed. I don't know precisely, you know, what's going on at this moment in time, you know, but it's a reasonable hypothesis.
Thanks for the color.
Roy, there are no further questions at this time. Please proceed with your closing remarks.
Great. Thanks very much everybody for your time. If you have any follow-up questions, drop me an email or give me a shout. Mark your calendar for Wednesday, July 26th, when we will be releasing our Q2 results. Thank you.
Ladies and gentlemen, this concludes your conference call for today. We thank you for joining, and you may now disconnect your lines.