The COVID-19 pandemic has driven Canadians away from discount grocery stores, a trend that Loblaw Cos. Ltd. is hoping will reverse in the year ahead.
As people have been going out less and looking for more one-stop shopping opportunities, they have turned to larger-format conventional supermarkets. That trend has dealt a blow to the discount business, which makes up roughly 60 per cent of Loblaw’s grocery store network – a higher percentage than some of its rivals. Lower-price banners such as Loblaw-owned No Frills tend to be smaller stores carrying fewer products, and are designed for quick, frequent transactions.
The Toronto-based retailer, which also owns grocery stores including Loblaws, Real Canadian Superstore and Provigo, has been investing in more pricing promotions to try to draw shoppers back. Traffic to its discount stores is beginning to grow.
In the fourth quarter, same-store sales at Loblaw’s regular-priced supermarkets were up 10.6 per cent, and while discount grocery store sales grew more slowly, at 7.4 per cent, the gap was narrower than in previous quarters. (Same-store sales, an important metric in retail, compares sales growth at stores open a year or more.)
“What we are seeing is a little bit of change in consumer patterns,” Loblaw president Sarah Davis said on a conference call to discuss the company’s earnings on Thursday. “Through parts of the pandemic, people were guided to only go shopping once per week, one member per family. … Now it’s opened up a little bit. We’re seeing a few more shoppers doing more than one shop in a week, perhaps shopping in a few different banners as well.”
Loblaw expects grocery sales to remain high in the first half of 2021 as Canadians continue to cook for themselves at home during the pandemic, and restrictions on businesses such as restaurants continue in many parts of the country.
The retailer released its fourth-quarter and annual results on Thursday, painting a picture of a year in which a grocery sector accustomed to slow and steady growth suddenly saw demand skyrocket. In 2020, Canada’s largest grocers also faced pressure to keep up with shopping habits shifting online, and endured criticism over whether they were paying front-line workers enough while they faced risks of COVID-19 infection on the job.
For the fiscal year ended Jan. 2, 2021, Loblaw reported $52.7-billion in revenue, compared with $48-billion in the prior year. The fiscal year included an extra week; on a comparable 52-week basis, revenue rose by 7.9 per cent (or 9.8 per cent for the full 53 weeks).
Like other grocers, Loblaw has seen demand surge for grocery e-commerce. Loblaw’s online sales grew 178 per cent to $2.8-billion in 2020, including $2-billion in online grocery sales.(Shoppers Drug Mart also has an e-commerce business selling beauty products and personal care items.) According to research firm NielsenIQ, 52 per cent of Canadian households now shop for their groceries both online and in stores, a 17-per-cent growth in online grocery shopping from 2019 to 2020.
Operating the e-commerce business is expensive, however, and that has affected profits.
“We are looking at ways to improve the profitability,” Ms. Davis said, noting that the bulk of the cost goes toward labour to pick and pack online orders in the stores. The company is also working on improving the customer experience, including cutting down on wait times for orders, and reducing substitutions for unavailable items.
Loblaw has also been monitoring the rollout of COVID-19 vaccines. Like other pharmacy retailers, the company has advocated for its Shoppers Drug Mart stores to help with distribution. Some of its pharmacies will be administering shots in Alberta starting next week; in other provinces such as Ontario, Manitoba and Saskatchewan, pharmacies have been told they will be part of the process but have not been given information on the exact timing or the rollout strategy.
“We’ve been in conversations with every government, every part of the government,” Ms. Davis said.
Loblaw reported Thursday that same-store sales at its supermarkets grew by 8.6 per cent in the year, a significant jump for an industry in which growth rates of 1 to 3 per cent are more common. Its Shoppers Drug Mart chain had same-store sales growth of 4.9 per cent in the year.
Loblaw’s net earnings for the year were $1.19-billion or $3.08 per share over the 53-week period, compared with $1.13-billion or $2.90 over 52 weeks in the prior year.
Loblaw said that its costs related to COVID-19 were approximately $445-million in 2020; of that, $180-million was related to increased compensation including bonuses for employees at stores and distribution centres.
The company spent nearly $1.6-billion over the year on share repurchases. In the year ahead, Loblaw plans to continue to spend “a significant portion” of its free cash flow on repurchases, it said in a statement.
In the fourth quarter, the company reported overall revenue of $13.3-billion. Not accounting for the extra week, revenue grew by 7.1 per cent, compared with $11.6-billion in the same period the prior year. Online sales grew by 160 per cent year over year on a comparable 12-week basis.
Net earnings in the 13 weeks ended Jan. 2 were $394-million. For the comparable 12-week period last year, net earnings grew by 22 per cent to $310-million or 88 cents per share, up from $266-million or 70 cents the year before.
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