A TALE OF 14 DAYS

THE RESURGENCE OF HOME COOKING HAS DRAMATICALLY CHANGED THE GAME FOR GROCERS IN CANADA.

TORONTO• The resurgence of home cooking has dramatically changed the game for grocers in Canada, who have been reporting hundreds of millions of dollars in extra sales during the first phase of the coronavirus crisis.

On Wednesday, Loblaw Cos. Ltd. — Canada’s biggest grocer — became the latest supermarket chain to report a major sales boost from the early days of the crisis, when public health warnings and sports shut downs touched off a wave of what Loblaw politely referred to as “extreme stockpiling.”

Loblaw, which also owns Shoppers Drug Mart, No Frills and the Real Canadian Superstore, estimated that coronavirus-related panic buying led to a sales increase of $751 million in its first quarter, which ended March 21.

Loblaw president Sarah Davis told an investor conference call that the first quarter boiled down to “a tale of 14 days” at the end of March.

“In a matter of days, customer counts and basket size spiked four fold,” she said.

The Brampton, Ont.based company reported revenues of $11.8 billion in the first quarter, a 10.7 per cent increase compared to the previous year. Of the extra $1.41 billion in sales, Loblaw said $751 million was from by pandemic-related spending.

The quarter saw diluted net earnings of 66 cents per share, 24.5 per cent higher than a year ago.

Loblaw’s rivals saw similar spikes. Metro Inc. estimated a coronavirus-related sales increase of $125 million in its second-quarter update, which only covered up to March 14 — three days after the NBA shut down. Meantime Sobey’s parent company, Empire Co. Ltd., reported that its same-store sales, a key gauge on retail success, grew by 37 per cent in the four weeks starting March 8, excluding fuel and Easter.

“We saw a rush to retail that no desk study could have anticipated,” Davis said of the March run on groceries.

But nearly two months into the countrywide lockdown, the rush has subsided. Now, grocers are adapting to an entirely new style of shopper. Before the pandemic, Loblaw was tracking a decline in Canadians cooking from scratch.

“There’s a big resurgence,” Davis said on the Wednesday conference call, adding that consumers are now drawn to home cooking staples, and less to the precooked “home meal replacements.”

Consumers are also less worried about price-tags and more averse to lineups and small, crowded stores. They are shopping less and buying more, gravitating to more conventional big-box market stores, like Superstores, instead of discount stores like No Frills, Davis said.

The new breed of shopper is also much more willing to order groceries online, pushing Loblaw years ahead in its e-commerce strategy.

“Online grocery volumes are three times the norm, hitting levels we didn’t expect for many years,” Davis said.

“We are clearly in a new phase for e-commerce.”

Of all the changes to consumer habits brought on by stay-at-home orders and mass restaurant closures, Loblaw’s executive chairman and TV spokesman Galen Weston said the shift to e-commerce might be one of the changes to survive into “any emerging new normal.”

Loblaw’s competitors have also ramped up online grocery shopping in recent weeks. Most notably, chief rival Sobeys has accelerated the launch of its new delivery system, Voila, which started testing on of its automated picking warehouse in the GTA this week.

But Davis acknowledged that the increase online ordering — mostly in the curbside pickup program, called PC Express — has led to longer wait times, forcing the company to ramp up capacity by adding staff and picking orders overnight.

WE ARE CLEARLY IN A NEW PHASE FOR E-COMMERCE

“We expect that it will continue higher than it was pre-COVID but we do think it will settle in at a lower level than where we are right now,” Davis said.

Loblaw also signalled that hundreds of millions in increased costs associated the crisis will “fall heavily” in its coming quarter, including its $2-per-hour incentive for employees and enhanced cleaning regimes.

Complications in the food supply chain, including COVID-19 outbreaks at key Alberta meat-packing plants, are expected to increase costs and higher prices at the supermarket chain, chief financial officer Darren Myers said.

“Of course, there’s just a lot more cost in the whole supply chain system today,” he said. “I do think it’s reasonable to expect to see some inflation.”

In five weeks after the first quarter ended on March 21, as panic buying subsided, Loblaw’s same store sales in food retail still grew by about 10 per cent. Same store sales in drug retail, however, fell by approximately 6 per cent, due in part to reduced spending on discretionary items, including beauty products.