Loblaw expects e-commerce grocery shopping to grow ‘significantly’

Open this photo in gallery:

Galen G. Weston, the president of Canada’s largest retailer, says he believes a recent pull-back in e-commerce grocery shopping in Canada is temporary, and that online ordering for delivery and store pickup will continue to grow “significantly above today’s levels.”

As pandemic restrictions have eased, shoppers are venturing out to stores more often – a behaviour shift that surprised some e-commerce giants, such as Ottawa-based Shopify Inc. SHOP-T, whose share price and profitability have taken a hit in recent months.

Similar trends have affected Canadian grocery chains, with Mr. Weston’s Loblaw Cos. Ltd. L-T reporting in July that online sales fell by 17.5 per cent in its second quarter compared with the same period last year. And last month, Sobeys parent company Empire Co. Ltd. EMP-A-T also reported its online sales fell by 21 per cent in its first quarter (which falls later in the calendar year than Loblaw’s).

Consumers return to in-person shopping, but entrepreneurs prepare for e-commerce to stay

The e-commerce boom is fizzling out

“We don’t know exactly what the new growth rate is going to be,” Mr. Weston said in an interview. Though online sales fell compared with a period when COVID-19 fuelled heightened demand, he added, they are still tracking above prepandemic levels. “My view, and our company’s view, is that e-commerce in grocery will continue to grow, and it will continue to grow quickly.”

Unlike some of its competitors, Loblaw does not operate its own fleet of vehicles for delivering orders to customers’ homes, relying instead on third-party delivery companies such as Instacart and DoorDash. The partnership with San Francisco-based DoorDash Inc. DASH-N, first announced in June, began by offering orders from some Loblaw stores through the DoorDash app, as well as using DoorDash drivers to deliver orders placed on its own PC Express service.

That partnership is now expanding, with DoorDash delivering from roughly 1,100 Loblaw-owned stores across Canada – including various grocery banners such as Valu-Mart, Provigo and Real Canadian Superstore, as well as Shoppers Drug Mart locations. (The company has more than 2,400 stores in total.)

E-commerce carries operational costs for retailers, including for the staff time required to pack up orders and payment for drivers to bring them to the doorstep. That can make operating a online business challenging.

“We are getting closer and closer to an effective profit level there,” Mr. Weston said. “But the other way to look at it is, how much loyalty does it create in your customer relationship? Because most consumers today shop in stores and online. It turns out that if you shop online with us, then you tend also to shop more in our stores.”

Loblaw has also been working with DoorDash on a rapid service, offering deliveries for online orders in 30 minutes or less in many cases. That project has now grown to more than 10 locations, with further expansion planned.

That convenience comes at a cost, however – a hard sell for some at a time when inflation is driving grocery prices higher. Grocers have seen customers switch from conventional grocery banners to discount stores such as Loblaw-owned No Frills and Empire’s FreshCo. Shoppers have also been buying more house-brand products, which are typically around 10 per cent cheaper than name brands, Mr. Weston said.

Home delivery adds a premium to that grocery bill – around $10 for PC Express delivery customers, or a range of fees through DoorDash based on a customer’s location and distance from a store. (DoorDash’s deliveries are free with a $10 monthly subscription.) According to Mr. Weston, people are still willing to pay for convenience, though Loblaw has noticed some price sensitivity in the fee for click-and-collect orders, which charge $3 to $5 for store pickup.

Mr. Weston declined to comment on criticism levelled against Canadian grocers recently, as some have called on the retailers to do more to keep food prices low in an inflationary environment.

For DoorDash, the partnership with Loblaw is part of a larger push to build beyond its restaurant-delivery business and to offer delivery services to more retailers. DoorDash also partners with grocers in the United States, including Albertsons, BJ’s Wholesale Club and Giant Eagle, as well as other retailers including pharmacy chain Walgreen’s and discount-store owner Dollar General.

Profits from the restaurant-delivery business have been funnelled into building the retail side of the business, along with the platform’s international expansion to 27 countries. But DoorDash is still posting net losses.

“The focus on the entire business … is really, how do we maximize total profit dollars for the long run. That’s why we’re investing in these new categories,” DoorDash co-founder and chief executive officer Tony Xu said in an interview, adding that the company is cash-flow positive. “If we just wanted to show you a really big number over a singular quarter, we wouldn’t have all of these investments.”

According to Mr. Xu, DoorDash has not experienced the same labour crunch that has affected transportation companies and retailers. According to the company, there are currently more than 190,000 active delivery people on its platform in Canada, who work an average of three hours a week.

Loblaw has been working on other technology initiatives in its retail logistics. The company has been testing driverless vehicles that shuttle products from fulfilment centres to stores, and has worked on introducing more automation in its warehouses as well.

“You’ll continue to see us exploring opportunities for innovation, for efficiency, a good portion of which I expect we’ll partner with DoorDash on, too,” Mr. Weston said.