Loblaw focusing on service, margins and costs as digital sales surge 133%

Date : 10 May 2021

Stewart Samuel

Program Director - Canada

With Loblaw seeing continued strength in Q1, we look at how it’s preparing for a tougher second quarter as it laps the surge in demand from last year.

Q1 key numbers

  • Retail segment sales increased 0.7% to $11.7bn
  • Food retail same-store sales up 0.1%
  • Drug retail same-store sales down 1.7%. While pharmacy same-store sales increased 3.5%, front store same-store sales fell 6.4%
  • Ecommerce sales increased 133% year-on-year
  • COVID-19 related costs were approximately $48m
  • Operating income increased 14.0% to $617m
  • Net earnings up 30.4% to $313m

Source: Loblaw

Strength in conventional as discount continues to improve

With Loblaw’s first quarter, lapping the start of the pandemic last year, its two-year average revenue growth increased 5.5%, with food same-store sales up 4.9% on the same basis (2020 Q1: +9.6%). Similar trends continued through from Q4, with strength in its conventional business, and discount continuing to improve. Volumes were up across its grocery stores, while inflation remained flat to Q4 as it continued to invest in pricing.

Brand trust could benefit from vaccination effort

Its drugstores continue to be negatively impacted by the pandemic, specifically its beauty business. However, they are playing a key role in the vaccination effort, and while the impact on sales has not been material to date, it will further strengthen consumer trust in the Shoppers Drug Mart brand. Although the company administered 700,000 vaccines in the quarter, it has the capacity to deliver 1m each week.

Loblaw views a significant opportunity for pharmacies to broaden the scope of services they offer over the longer term and becoming an integrated health care provider for minor ailments. This comes as the retailer is ramping up its healthcare activities, having launched its PC Health app in the second half of last year and making solid progress with its higher margin pharmacy services.

Focus on improving digital profitability

Digital sales were up 133% in the quarter. As it continues to respond to consumer demand, it is focusing on improving customer service and margins and lowering its cost to serve. Building a bigger basket is a key part of the plan to grow its margins, with the business making good progress on adding general merchandise items to the offer.

Elevated sales set to continue

Loblaw expects grocery stores sales to remain elevated due to the continued impact of the pandemic, especially with lockdowns remaining in place in many locations. As economies reopen, revenue growth will be challenged while lapping elevated 2020 sales. While it has not stated a sales target, it expects its retail segment to grow earnings faster than sales. This year it will invest $1.2bn in capital expenditures as it continues to drive its strategic priorities of everyday digital retail, connected healthcare and payments and rewards.

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