We review Loblaw’s third quarter performance, including how its supporting ecommerce growth, expanding its meal solutions offer and investing in pricing within its discount business.
Q3 key numbers
- Total revenue up 6.9% to $15.7bn
- Retail segment sales up 7.2% to $15.5bn
- Food retail same-store sales increased 6.9%; market division up 9.7%, discount up 4.7%
- Drug retail same-store sales up 6.1%, with pharmacy up 10.3% and front store up 2.4%
- Ecommerce sales up 175% across its grocery, pharmacy and clothing platforms
- $85m in COVID-19 related costs
- Operating income up 4.1% to $718m
Trend acceleration aligned with Loblaw’s strategic priorities
The pandemic has accelerated several longer-term trends which align with Loblaw’s strategic growth priorities. These are focused on everyday digital, connected healthcare and payments and rewards. Several new initiatives were launched in the quarter to support these, including the expansion of its ecommerce platform to include front-store items at Shoppers Drug Mart, the launch of PC Money and the PC Health app, and its investment in Maple Corporation.
Ecommerce focus on substitutions and wait times
Loblaw continued to make progress with its grocery ecommerce business, with customer satisfaction improving as it added capacity. Penetration within the food business currently sits at 4-4.5%. The business remains focused on product substitutions and wait times. One of the key initiatives to reduce substitutions has been to provide users of its app with visibility of low-stock items, enabling them to consider choosing other products.
Increasing price intensity in discount
The performance of its discount division continues to improve, although price competition in the channel has intensified. Loblaw invested more in pricing during the quarter as it continues to be impacted by the opening of FreshCo stores by Sobeys in western Canada and increased competitive intensity on a national basis.
Expanding meal solutions
The retailer has several tests and programmes underway to provide consumers with a broader set of meal solutions. These include ingredient-based and ready-to-cook meal kits, which have been made available in 240 stores, including 80 Shoppers Drug Mart stores. In the Toronto area, it continues to test a meal kit delivery service, which includes partnerships with local restaurants. This remains a key focus for the business.
Complex performance at Shoppers Drug Mart
Within its drugstore business, cosmetics continues to be a weakness, although trends are improving. It also saw strong growth in prescription counts as government restrictions on fill rates unwound. It has also seen strong demand for flu shots, with more administered to date than it did all last year, although its cough and cold business remains soft. During the quarter, it added its front-of-store range to its existing beauty offer online, helping to grow digital sales by almost 200%.
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