Digital sales push through 5% penetration at Loblaw, driving focus on profitability

Date : 26 February 2021

Stewart Samuel

Program Director - Canada

We look at Loblaw’s fourth quarter and full year performance, including the growth of ecommerce and what it’s doing to improve channel profitability.

Q4 and full year key numbers

  • Fourth quarter total revenue increased by 7.1% to $12.4bn, with retail segment sales up 7.5% to $12.2bn
  • Food retail same-store sales growth of 8.6%, with its Market division delivering growth of 10.6%, and Discount up 7.4%
  • Drug retail same-store sales up 3.7%, with pharmacy up 5.0% and front-store up 2.8%
  • Ecommerce sales increased 160%
  • Operating income increased 17.4% to $635m
  • For the full year, total revenue increased 9.7% to $52.7bn, with operating income up 4.2% to $2.4bn
  • Ecommerce sales increased 178% in 2020

Source: Loblaw

Digital sales on-track to $3.0bn

Loblaw’s strategic framework has underpinned its performance over the last year, with its focus areas being particularly relevant during the pandemic. Set out two years ago, it’s focused on driving its digital businesses, developing a connected healthcare network and advancing its payments and rewards programmes. Its market leadership in digital retail enabled it to deliver outstanding growth through 2020. Digital sales increased to $2.8bn (5.4% of total sales), including $2.0bn in grocery ecommerce. Its focus is on delivering a comprehensive omnichannel solution and remains well-positioned for further growth through its national reach and scalable platform.

Focus on improving profitability

However, the shift to online will be a headwind to profitability over the medium term. Over the last 12 months, the growth in ecommerce had a dilutive impact of approximately $100m in operating income. The majority of this is related to the cost of in-store picking. The business continues to focus on improving channel profitability through operational efficiencies and technologies, sales and margin incrementally, and using its data set for more relevant and measurable promotion and advertising opportunities. It continues to develop its third-party marketplace and invest in its digital media business, recently acquiring the technology and related team from Eyereturn Marketing Inc to support its advertising ambitions. Its digital media platform has been built and the business is ready to execute in 2021. This year, the retailer will also focus on improving execution and the customer experience, including product substitutions and wait times.

Pandemic vindicated its investments in connected healthcare

The pandemic also highlighted the potential of the investments Loblaw has been making in digital healthcare. This year, it expects to invest $20m to continue the digitisation of its pharmacy operations and expand the functionality and user base of its PC Health app which launched last year. This will roll-out nationally in 2021. 

Discount narrowing the gap with conventional supermarkets

Within its core business, the gap between its conventional supermarkets and discount formats continues to narrow. During the initial stages of the pandemic, discount stores did not gain at the same rate as other stores as shoppers consolidated their trips and focused on outlets where they could complete most of their weekly shopping. Loblaw has invested in pricing to gain back share in the channel. The retailer also noted that shoppers are undertaking more trips each week, including visiting different banners.

Retail Analysis subscribers: read our four-part report series on online profitability, starting with part one, Online profitability: in-store picking. 

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