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Loblaw’s drugstore business, Shoppers Drug Mart, has started to offer same-day delivery through the company’s partnership with Instacart.

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Loblaw is launching a trial digital advertising service that rewards customers with loyalty points for seeing relevant and tailored ads on third-party websites.

Providing customers with more relevant digital ads

This new programme will optimise data from Loblaw’s PC Optimum loyalty and rewards scheme to provide its customers with more relevant ads as they browse the internet. PC Optimum is Canada’s leading loyalty programme, with over 18bn members. Initially, the service will be trialled with a small number of customers which will enable them to earn additional rewards points for seeing the ads.

Source: IGD Research

Opportunity for national brands to target loyalty scheme members

While the retailer has previously optimised its PC Optimum programme to provide customers with personalised offers and ads through its own web channels and email, the trial expands this to other websites, including social media sites. The service will enable national brand advertisers to target PC Optimum members across a range of digital properties. The ads will include a visible identifying mark or logo associated with PC Optimum.

Aiming to create more transparency in the media industry

Several other retailers, including Walmart, Kroger and Albertsons, have set up digital marketing operations, with a view to selling ads across first-party and third-party websites. However, this is the first instance where customers will be rewarded for allowing the use of their data to expose them specific adverts. Loblaw will be hoping that the prospect of providing greater transparency and seeing more relevant ads will prompt them to opt-in to the programme.

Creating new income and profit streams

Digital marketing is becoming a core competency for grocery retailers as they develop a strong digital presence. Last year, Kroger announced that digital marketing would form a key part of its alternative profits stream moving forward. It is aiming to build one of the most transparent media companies in the sector. Recently it formed an integrated media and measurement relationship with Pinterest which enables advertisers to optimise Kroger's data for targeting on the social platform.

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We look at Loblaw’s latest initiative to reduce food waste within its stores.

Piloting the programme in Quebec

Loblaw is partnering with Toronto-based Flashfood, which has developed an app that enables consumers to benefit from deep discounts on surplus food at grocery retailers. The retailer has initially made the service available to customers at nine Maxi stores in Quebec. By the end of April, it expects to have it available in 113 Maxi stores and 25 Provigo stores in the province. For Loblaw, this forms part of its major initiative to reduce costs, while also tackling an issue which resonates strongly with consumers. In January, Second Harvest and Value Chain Management International’s ‘Avoidable Crisis of Food Waste’ report revealed that 58% of food produced in Canada, is lost or wasted each year, a third of which could be rescued.

Source: IGD Research

How it works

Through the Flashfood app, customers can see products nearing their expiration date and purchase them at a significant discount. Customers can browse available deals at any participating store. Products are purchased directly through the app and collected by the customer from the Flashfood zone in the store. Loblaw’s ability to launch this programme follows on from the work it has undertaken to understand date codes at the item level.

Saving customers up to 50% on items purchased through the app

In addition to Loblaw, Flashfood is working with Target and Hy-Vee in selected stores in the US. To date, Flashfood has sold more than 75% of the products made available through its platform. The company reports that it has saved consumers an average of 50% on grocery items purchased through the app. Recently the company secured additional venture capital funding, led by General Catalyst and several other investors, including James McCann, former CEO of Ahold USA.

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We review Loblaw’s fourth quarter performance and the outlook for the year ahead.

Stronger traffic and basket trends

Loblaw’s fourth quarter revenue increased by 2.1% to $11.1bn, with food retail same-store sales up 0.8% and drug retail same-store sales up 1.9%. It delivered a solid performance within its food business in the quarter, growing same-store sales while also increasing its margins. The retailer saw both strong traffic and a bigger basket, with food inflation broadly in line with the CPI measure. Drug retail saw growth in all front store categories, with strong prescription growth more than offsetting the negative impact of drug reform.

Adjusted net earnings fell 7.8% to $402m. For the full year, total revenue increased 0.2% to $46.7bn with adjusted net earnings down 2.8% to $1.7bn.

Source: IGD Research

Expanding retail margins through productivity and efficiency focus

Retail margins improved as the business made progress with process and efficiency initiatives, using more data-driven insights, improving promotional effectiveness and driving shrink lower. However, sales in general merchandise were impacted as it shifted from a high-low to everyday low price pricing approach. While this supported margin expansion, sales were softer than expected. It will revise its approach this year, using a combination of pricing strategies.

As part of its focus on reducing costs, it will continue to add self-checkouts at pace. Around one-third of its customers are using these in stores where they have been deployed. Self-checkouts are expected to be in 1,000 stores by the end of the year. Loblaw will also extend its electronic shelf label pilot from five stores to 50 by the year end.

Investing $1.1bn in the business

Against a backdrop of continued cost headwinds, in the year ahead, Loblaw expects to deliver positive same-store sales growth and stable retail gross margins, while investing $1.1bn in capital expenditures. It plans to accelerate initiatives aligned with its three strategic priorities of everyday digital retail, payments and rewards and connected healthcare.

Ecommerce sales hit $500m

Ecommerce continues to be a major focus, with sales surpassing $500m in 2018. Its PC Express pickup service has been extended to 670 locations, reaching 75% of Canadians within a 10-mimute drive time. Its home delivery service, where it is partnering with Instacart, is available to 65% of Canadian households. In the year ahead, it will focus on improving execution, driving customer adoption and improving customer satisfaction.

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