LOBLAW CLEANS UP IN EVERY AISLE
SAME-STORE SALES UP 8.6% IN Q4, BUT GROCER EXPECTS IT WILL BE ‘CHALLENGED’ TO KEEP THAT UP
TORONTO • The story around Loblaw Cos. Ltd. hasn’t changed all that much for almost a year: The supermarket chain, like its competitors, has stayed in a rare pandemic sweet spot, allowed to stay open as sales soared to record levels, mostly due to the lockdowns that left consumers little choice but to stock their pantries and eat at home.
Loblaw’s year-end financial update on Thursday showed more of the same. Revenue rose by almost 10 per cent in 2020 and online sales roughly tripled. But there were problems, too, and added costs that come with such growth.
Company president Sarah Davis said, “2020 was complicated, with many shifts in dynamics.”
Canada’s largest grocer during the year faced national criticism over how much it pays its staff and how it treats suppliers — issues that drew scrutiny from the federal government — as well as mounting costs to constantly sanitize its stores and ramp-up its e-commerce operations to meet unprecedented demand.
But the industry’s sales gains aren’t expected to persist at the same dizzying level once vaccines are widely rolled out, restrictions ease and people can finally eat someone else’s cooking.
Loblaw on Thursday warned that this year’s revenue growth “will be challenged” to hit last year’s heights, but it still expects sales to remain elevated through the first half of this year.
Asked on a conference call with analysts whether Loblaw will use sales promotions to help it keep its share of household spending as the “food-from-home pie” starts to shrink, Davis said she was happy with the company’s current pricing. She also noted that hundreds of millions of dollars in safety costs will disappear if the pandemic retracts.
“We feel like we’re actually in a very good position to meet the changes in consumer demand,” she said.
Loblaw also detailed its ability to help hasten a return to normal if public health authorities call upon the chain’s 1,300 pharmacies to assist with distributing COVID-19 vaccines. Loblaw owns Shoppers Drug Mart, as well as grocery chains such as No Frills and Valumart.
“Our supply chain can deliver vaccines the day we receive them and we can administer one million shots per week,” Davis said, adding that some of its pharmacies in Alberta will start offering vaccines next week.
She said Ontario, Manitoba and Saskatchewan have signalled plans to include Loblaw pharmacies, “but we have not been given the rollout strategy across all the provinces or the timing yet.”
Loblaw reported that 2020 sales rose to $52.7 billion, from $48 billion in 2019 (though 2020 had an extra week). Revenues reached $12.4 billion in the fourth quarter, up $818 million, or 7.1 per cent, over the previous year.
Same-store food sales, an important gauge of yearover-year growth in retail, grew by 8.6 per cent in the fourth quarter, which RBC Dominion Securities Inc. analyst Irene Nattel said was “a nice uptick” compared to 6.9-per-cent growth in the third quarter.
In a research note, Nattel was also impressed by Loblaw’s progress in narrowing the sales gap between its full-service and discount stores.
Loblaw noticed the shift away from discount retailers such as No Frills earlier in the pandemic, which it attributed to public health suggestions to only shop once a week — an easier feat at a traditional, full-service supermarket. The shift, however, was particularly troubling for Loblaw since 60 per cent of its business is in the discount category.
“We hate losing market share and so we did invest to win some of that share back,” Davis said.
The most striking change last year was the 178 per cent jump in Loblaw’s e-commerce sales. It sold $2.8-billion worth of goods through e-commerce as consumers let go of their long-held skepticism toward online grocery shopping.
“The rise of digital retail has been dramatic,” Davis said. “We know this is where retail is headed, but it creates a challenge. Online grocery is a higher cost channel. So we are taking steps to manage margin impact over the medium term while maintaining our leadership position.”
The growth in online sales dragged down Loblaw’s operating income by $100 million, and its diluted net earnings per share by 20 cents. The ongoing shift from in-store to online is expected to be “a headwind to profitability over the medium term,” the year-end report cautioned.
“It’s just a higher cost to serve,” Loblaw chief financial officer Darren Myers told analysts. “The lion’s share of it is all the labour costs, the depreciation, all the costs that go into fulfilling an online order.”
The company reported net earnings of $1.19 billion in 2020, up from $1.13 billion in 2019. Loblaw during the year spent roughly $445 million in “COVID-19 related costs,” including safety measures, and $180 million in pay bonuses.
At the start of the pandemic last spring, Loblaw was praised for increasing frontline staff wages by $2 per hour, but was subsequently criticized when it — along with its two top competitors — cancelled the bonuses on the same day in June 2020.
Top executives from Loblaw, Metro Inc. and Empire Co. Ltd., Sobeys’ parent company, were all summoned in front of a parliamentary committee to explain their decision to cut the bonuses.