The strange thing about that is there's already no lack of No Frills in that part of the city. There's one within about a 20 or 25 minute walk from there in all four compass directions -- 222 Lansdowne, Dufferin Mall, 2187 Bloor W, and 372 Pacific Ave.
From what I can see, the three closest Loblaws are all about an hour long walk away according to Google map directions (650 Dupont, 585 Queen St W, and 3671 Dundas St W).
I haven't spoken with anyone internal to Loblaw about this, but I would surmise that the thought process goes like this......
The current store has missed multiple renovation cycles and does not meet the standards of the Loblaws banner. Work was deferred here, in part, because of the prospect of redevelopment. With development further off, the store's neglected conditions seems more worth addressing. The current store, having been neglected, and having lost business in recent years to the Freshco just to the north wasn't making a ton of money (if any)
Cost of renovating to the standard of a contemporary Loblaws, 8-11M
Cost of renovating to a contemporary NF 4-6M *
* Varies based on what service counters are included, differences in cost are fit and finish, whether there are Deli/HMR counters, Bakery/Dessert Counters, In-store ovens for par-baking, meat counters, meat cutting, floral etc.
In general, cost of operating a NF is less, which reduces the risk of a low-perfomring location.
Assumption - Loblaws customers are more willing and able to drive to a destination store. NFs attract more walk-up and transit traffic. Greater distances for customers of Loblaws are less of an issue.
Overall trends in the market, Discount is rising in market share, conventional is stagnant to declining.
I should add, while I am unfamiliar with the details of the labour arrangements this particular store, banner flips normally allow for laying off high earning unionized staff in favour of new , lower cost workers.