RetailAnalysis
23 February 2017
How Loblaw is driving growth in a deflationary environment

We review Loblaw’s fourth quarter performance and the drivers of growth for the next 12 months.

Sales gains led by drug retail business

Loblaw’s revenue increased by 2.4% in the fourth quarter to $11.1bn, with net earnings up 55.7% to $204m. Food retail same-store sales (ex-fuel) were up 1.1%, while drug retail saw a 3.4% gain. This latter segment saw strong front store same-store sales, with a gain of 3.4%. For the full year, total revenue increased 2.2% to $46.4bn, with net earnings up 64.4% to $983m.

Investing aggressively in pricing

This is yet another solid performance from Loblaw, delivering modest sales growth in a deflationary environment, and strong profit growth. The drug retail business continues to deliver the strongest growth, with Loblaw seeing solid increases in all major categories led by cosmetics and over-the-counter medicines. Within food retail, the retailer’s initiatives to drive basket growth and volumes were successful, including an enhanced package of multi-buy offers. It has also been investing in lower prices, taking a category by category approach, but making the most aggressive investments in fresh foods.

Expanding its ecommerce offer to additional locations

During the quarter, the number of click and collect points for its ecommerce business reached 100 locations. The retailer is taking a very deliberate approach with the roll-out, continually refining the offer as it seeks to build a pathway to profitability. While it will continue to extend the proposition to additional locations this year, it continues to assess whether to be more aggressive with its approach, or to grow at the pace of the market.

Delivering an enhanced food and beauty offer in drug retail

One of the key drivers of growth at Shoppers Drug Mart over the last 12 months was the deployment of the new food offer, which included the President’s Choice private label ranges and new planograms. While this, along with an enhanced cosmetics and beauty offer, is expected to continue to underpin growth this year, Loblaw will also roll-out its enhanced fresh offer to more urban locations.

Investing in its retail network

While the trading environment is viewed as intense, competitive behaviour remains rational. Based on current business performance, and market trends, the retailer is planning for positive same-store sales growth in 2017. Loblaw will also be investing $1bn in its retail segment, with remodels likely to account for the greatest proportion of spend.




Stewart Samuel, Program Director, IGD Canada
Based in Canada, Stewart heads up all of IGD's research and coverage on Loblaw. He is also responsible for shaping IGD's research program across North America. Contact Stewart at stewart.samuel@igd.com for further insight on the region.
@Stewart_IGD
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