We review Loblaw’s Q1 performance as it adjusts to the new trading conditions and assess its long-term strategies against the key emerging trends.
1. Sales gain of over $750m due to the pandemic
Loblaw’s first quarter retail revenue increased by 10.8% to $11.6bn, with the retailer estimating that excluding the impact of the coronavirus (COVID-19) pandemic, revenue would have increased 3.5%. This represents an additional $751m in revenue to due to the pandemic, and an increase of $1.1bn over last year. Food retail same-store sales growth increased 9.6%, with drug retail same-store sales up 10.7%. Adjusted retail EBITDA increased 17.9% to $1.2bn. In the final two weeks of the quarter, sales were up approximately 44%.
Source: IGD Research
2. Elevated growth continues in food retail
While ongoing elevated demand has benefitted essential food categories, sales in pharmacy and some discretionary categories have been pressurised. In the five weeks since the end of the quarter, food retail same-store sales were up approximately 10% and down approximately 6% in drug retail. The Shoppers Drug Mart business has been impacted by lower traffic, as customers brought forward prescription fills during the stocking-up phase and it moved its beauty advisors out of active-selling roles to support customers.
3. New shopping habits forming
Loblaw highlighted how customers are shopping less, buying more and favouring one-stop shops. Its market division is benefitting more than its discount business in the current phase, with customers less focused on price. This is a reverse of pre-COVID19 trends. Customers are focused on visiting larger, less-crowded stores, where they can access the full range. The retailer’s clothing business has experienced a decline in sales. Action has been taken to reduce inventory in the second half and change some of its general merchandise range.
4. Grocery ecommerce penetration running at double-digits in some stores
The business expects online grocery to retain a significant proportion of the current sales penetration, which has increased threefold. In many stores, penetration has reached double-digits. Currently, the business estimates that its online business is two to three years ahead of where it expected to be in terms of growth. It has also introduced a white-label delivery service through Instacart, which operates alongside its existing partnership with the on-demand delivery company.
5. Cost pressures challenging the business
The retailer continues to make investments in the business, including temporary pay premiums, initiatives to support social-distancing and the expansion of its PC Express ecommerce services. The retailer estimates that the additional investments are running at $90m per four-week period, placing financial pressures on the business. The retailer is focused on brining its P&L back into line.
6. Daily focus areas for the senior team
The daily priorities for the senior leadership include keeping people safe and well, optimising store operations and ecommerce and advancing business strategies for the next phase. The business is anticipating new habits and behaviours to form.
7. Sense-checking emerging trends versus business strategies
Loblaw is also mapping emerging trends against its long-term strategies. Many of its existing initiatives, including grocery ecommerce expansion, digital flyer investment, accelerating connected and digital health and investing in online clothing, beauty and pharmacy businesses are aligned with the shifts seen in recent weeks. The business remains well positioned during and beyond the current crisis.
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