Loblaws observing from sidelines
Grocer at home, for now, with ‘click-and-collect’ model
TORONTO — Loblaw Cos. will observe from the sidelines, for now, when it comes to home delivery of online groceries, Galen Weston said Thursday.
The country’s biggest grocery and drug retailer competes with Amazon and Walmart online for sales of food, health and beauty items through its “click-and-collect” model, where customers order and pay online and pick up items outside selected Loblaws stores.
Amazon.ca delivers packaged food to people’s homes, as do a handful of grocery players across the country, while Walmart recently began testing a home delivery service in Toronto.
But Loblaw Cos.’ CEO Galen Weston said there is compelling evidence that click-and-collect, a far less costly proposition than home delivery in the low-margin world of food retail, holds greater appeal for consumers.
“We might experiment (with home delivery), but I don’t think anybody has reached that conclusion that it is the best path forward for grocery,” Weston told analysts Thursday on a conference call to discuss fourth-quarter results. The retailer saw its sales and earnings grow despite the downward drag of food price deflation in the period ended Dec. 31.
In a country where people are using their cars frequently for errands and can pick up groceries easily within a 15- to 20-minute time slot, click-and-collect might have “more resonance than the idea of waiting around in your house, being trapped in your house waiting for that particular delivery to arrive,” Weston told analysts.
Loblaws offers click-and-collect at more than 100 of its stores. Earlier Thursday, Walmart announced it would extend its online grocery pickup service to Edmonton, the retailer’s first click-and-collect offering outside of Ontario. Loblaws is watching the home delivery trend, Weston added, but said research in markets where online grocery shopping is more mature suggests “there is a shift towards click-and-collect” among consumers.
“It is definitely in our interest as an incumbent, store-based retailer for (click and collect) to be the dominant channel for digital grocery in Canada.”
Online grocery shopping is estimated at less than $2 billion in Canada, a minuscule part of the $140 billion market for groceries, but it is growing annually in the double digits. Online grocery sales are expected to hit $3.6 billion per year in Canada by 2019, according to estimates from Forrester Research.
“In the U.S., Amazon and others have been disrupting traffic and some of the business model for some of these traditional grocery retailers,” said Britanny Weissman, retail analyst at Edward Jones.
“In the U.S., that grocery day of reckoning is coming, whereas in Canada retailers are trying to think about it a couple of steps ahead. Doing that early it gives them the flexibility to think about the best way to roll (the online model) out.”
Meanwhile, Loblaw reported net earnings attributable to common shareholders of $204 million in the fourth quarter, or 50 cents per share, up from $131 million (31 cents), in the same period a year ago.
Revenue was $11.1 billion, up 2.4 per cent from $10.9 billion in the fourth quarter of 2015.
Grocers have been trying to compete more aggressively on price and drum up more customer traffic as food prices have been going down across the board.
Consumers “are buying more low-priced products,” Weston said Thursday, adding the company is watching deflation carefully and it creates “an increasingly difficult operating environment.”
Loblaw’s internal food price index declined but was slightly lower than the average quarterly national food price deflation of 2.3 per cent, as measured by the Consumer Price Index.
“We are lowering prices (and) customers are responding to those lower prices,” Weston said.
Same-store sales growth, a bellwether of retail performance that strips out square footage changes, rose 1.1 per cent. At Shoppers Drug Mart, same-store sales growth climbed 3.4 per cent.
Adjusted net earnings were in line with analyst estimates, rising to $393 million, or 97 cents per share, an 11.5 per cent jump from last year’s quarter when earnings were $363 million (87 cents).