We review Loblaw’s second quarter results, it’s record ecommerce growth and long-term strategic direction.
- Revenue increased 7.4% to $12.0bn, with retail segment sales up 7.9% to $11.8bn
- Food retail same-store sales were up 10.0%, while drug retail same-store sales fell 1.1%
- COVID-19 investments totalled $282m
- Operating income fell 31.3% to $404m
- Net earnings fell 40.9% to $169m
Shift to conventional supermarkets
The quarter included the impact of the surge in demand as consumers responded to the initial phase of the pandemic. Shopper demand shifted towards its conventional supermarkets, with same-store sales up 18.8% in its market division and discount seeing a much smaller increase, up 4.9%. Drugstore sales were impacted by less convenience-based shopping, restricted cosmetics sales and a lower level of prescriptions. Profitability was impacted by the additional costs incurred to ensure the safety of customers and associates, along with bonus payments. Although the retailer continues to incur COVID-19 related costs, they are expected to be lower in the third quarter.
Digital sales up 280%
The standout feature of the quarter was the growth in digital sales, up 280% to $1.2bn on a year-to-date basis. This exceeds the $1bn generated through digital in the last full year. This has generated additional costs, which were anticipated but not within the time-frame. However, the retailer believes that the investment will provide a long-term competitive advantage.
Testing automated micro-fulfillment
During the quarter, the retailer launched its automated micro-fulfillment centre (MFC) pilot as part of its partnership with Takeoff Technologies. It also set up several manual fulfillment centres to support demand. Although it remains early days, the business is aiming to understand if the manual centres can be as efficient as the automated centres, or if the increased capital spend is worth it, especially in high density locations. Loblaw is also testing another delivery model where its store teams pick customers' orders, with delivery undertaken by a third-party.
Canadian retailers ramping up their investments
Retailers in Canada are moving quickly to capitalise on channel growth. Walmart is expanding it store pickup programme as part of a $3.5bn investment in the business, Sobeys is accelerating its roll-out with Ocado and Metro has started to work with Cornershop to offer on-demand, same-day deliveries. This will be a key focus for the industry this year and into 2021.
Sales continue to evolve as restaurants reopen
In the four weeks following the end of the quarter, the retailer’s sales growth and product mix continues to evolve as restaurants re-open. It is starting to see a return to discount, a trend it expects to accelerate as economic conditions tighten. The business is focused on maintaining its channel share as its competitors drive additional investment in this area.
Confident in strategic direction
It remains confident with regards to its outlook, with the pandemic reaffirming its strategic direction and focus on digital retail, connected health and payments and rewards. Beyond its ecommerce initiatives, it has ramped up virtual care and digital pharmacy assets and remains and focused on delivering personalised connections through its PC Optimum programme.
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