Focus on margins pinches profit at Loblaw
Canada’s largest grocery and pharmacy chain saw sluggish same-store sales at food stores in the most recent quarter as an “overzealous” attempt to implement algorithms using consumer data to grow margins ate into profits.
Loblaw Companies Ltd., based in Brampton, Ont., reported Wednesday a second-quarter profit of $286 million, essentially flat when compared with the same quarter a year ago. However, same-store sales, a key retail metric, grew just 0.6 per cent at the company’s grocery store banners, which include Loblaws, No Frills, T&T and Real Canadian Superstore. Same-store sales growth slowed from the same time last year when the metric moved up 0.8 per cent.
In the most recent quarter, retail traffic in the segment decreased, though consumers’ basket size grew.
“We are not content with that performance,” Loblaw Companies president Sarah Davis said during a conference call with analysts Wednesday.
The low grocery store sales growth figure came as the company created algorithms focused on profitability and increased margins — the amount by which revenue exceeds product costs — which decreased the emphasis on promotions to bring customers into the stores.
“You end up with fewer items on promotion in your flyer,” she said of the result, which dragged sales.
But even as the company’s grocery chains struggled, the company’s drug retail division saw same-store-sales growth of four per cent in the same quarter.
The best quarterly performance for Shoppers Drug Mart in three years was owed partly to “a very strong cough, cold and allergy season,” said Davis.
The growing number of Shoppers Drug Mart locations that now have an enhanced food offering — more than 100 stores — helped drive traffic and basket gains, she said.
Loblaw’s quarterly profit was $286 million, or 77 cents per share, from continuing operations, down $7 million from $293 million in last year’s second quarter.