We review Loblaw’s third quarter performance and its plans to drive stronger growth in its food business.
Top line results
Loblaw’s third quarter retail revenue increased by 2.2% to $14.4bn. Revenue through its drugstores increased by 4.3% with food retail revenue up 1.5%. On a same-store sales basis, drug retail was up 4.1% and food retail up 0.1%, or by 1.0% accounting for the shift in the timing of Thanksgiving Day. Retail operating income increased by 18.9% to $655m.
Strong growth in drugstores
The retailer continues to deliver a strong performance within its drugstore operation. Pharmacy same-store sales were up 5.3%, on the back of strong prescription count growth, while front store same-store sales were up 3.1%, led by over-the-counter, health and beauty and cosmetics categories. During the quarter it added six next-generation Beauty Boutiques, while online beauty sales were strong too.
Uptick in price competition
Sales growth in food retail was below expectations with the business poised to make adjustments to drive customer traffic and volumes. Loblaw is seeing increased competitive activity, especially in the discount channel, which is likely to lead to further investments in pricing and service. A change in leadership at Walmart and a new vision for discount at Sobeys is contributing to this increased intensity. It continues to make progress with its new data driven insights approach. It’s testing flyers with fewer pages and running more targeted promotions but is mindful of striking the right balance with more mass market deals which have broad appeal.
Investing in grocery ecommerce
Significant investment continues to be made in its grocery ecommerce business. During the quarter it opened a standalone pickup store, PC Express, in Toronto, with the initial response ahead of expectations. The retailer is also focused in delivering improved channel efficiencies. To support this, it is set to test automated micro-fulfillment in a partnership with Takeoff Technologies.
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