Loblaw Cos. Ltd. is accelerating its grocery e-commerce push, joining other major food retailers in boosting online selling to fight off powerhouse Amazon.com Inc. as rising costs cut into profit margins.
Loblaw, the country’s largest grocer, will “blanket” Canada with grocery cybershopping options by the end of the year, chief executive Galen G. Weston said on Wednesday. Loblaw is rebranding its Click & Collect program to PC Express and expanding it to more than 700 stores by the end of 2018, from about 200 last year. It’s also adding some of its Shoppers Drug Mart stores and GO Transit locations in the Toronto area as grocery pick-up sites.
And Loblaw is expanding its premium home delivery service in partnership with Instacart to 16 markets in Canada by year’s end from 11 today, he said.
“We feel very confident in the path we are on,” Mr. Weston said.
All of the country’s three major grocers are taking ambitious but different steps to pump up their e-commerce, even as they grapple with cost challenges ranging from increased minimum wages to lower generic drug profits and higher transportation expenses.
The rush among grocers to expand their online selling follows Amazon’s US$13.7-billion acquisition of Whole Foods Market last year, signaling the e-commerce titan’s intention to build its food business. Discount giant Walmart Canada Corp. is also expanding its online grocery service.
Sobeys, the country’s No. 2 grocer, owned by Empire Co. Ltd., is teaming up with British online grocery specialist Ocado Group PLC to build sophisticated central distribution centres with robots for its e-commerce operations, while Metro Inc., the country’s third-largest player, is combining home delivery and store pick-up options as it plans on expanding e-commerce into Ontario from its Quebec base.
Still, grocers are grappling with how to find a profitable cyberselling business model. Michael Medline, CEO of Sobeys, said its first e-commerce fulfilment centre will not be built for another two years or so and will take years to turn a profit. But he said that long term, the robotics system for home deliveries will be the most profitable online grocery solution in Canada. “If you don’t believe in growth or e-commerce, this is not the deal for you.”
At Loblaw, customers tend to spend more in a click-and-collect order than a home delivery purchase, Mr. Weston said. The retailer’s hypothesis is that “you have a customer looking for one-hour convenient delivery because they’re trying to fill in something that’s in their kitchen, whereas the click-and-collect is more of the planned weekly shop. And that’s why we believe there seems to be such compelling room for both.”
Loblaw is looking for any location for highly convenient customer pick-ups, ranging from its own supermarkets to Shoppers stores, GO stations “or perhaps others,” he said.
Almost half of Canadians today have access to Loblaw’s PC Express (click-and-collect) or the retailer’s grocery home delivery and, by year’s end, that will grow to 70 per cent, Mr. Weston said.
Still, grocers are investing in their e-commerce at a time when they are facing rising costs from higher minimum wages in Ontario and Alberta – and possibly other provinces – along with profit-challenging generic drug reforms and higher transportation costs.
Loblaw president Sarah Davis outlined a few of the retailer’s cost-cutting initiatives, with the top one being rolling out more self-scan checkouts at Shoppers. It now has them in 260 of its drugstores and will boost that to about 400 by year’s end, she said. Almost 25 per cent of Shoppers’ customers ring in their own purchases with the self scanners at the stores where they are available, higher than the 15 per cent that the company had expected, Ms. Davis said. She did not spell out the labour reductions and cost savings tied to the scanners.
“The benefit is also that it’s actually improving customer satisfaction,” she said. “It really is allowing people with small orders to get in and out of stores more quickly.”
Loblaw has also been cutting costs by lowering its levels of inventory in its distribution centres and stores – by 16 per cent and 19 per cent, respectively – over the past three years, she said.
“With less handling of the inventory, there’s less labour required to handle the inventory,” she said. In some parts of its retail business, Loblaw has reduced the number of times employees “touch” inventory to 2½ times from four times, she said.
As well, Shoppers is centralizing routine prescription orders and refills – having them done at another central location – and freeing up pharmacists’ time to provide flu shots and other services, she said.
The efforts come as Loblaw reported improved first-quarter profit while raising its quarterly dividend to 29.5 cents a share from 27 cents a share.
Loblaw’s profit grew to $377-million, or 98 cents a diluted share, from $232-million, or 58 cents a share, a year earlier. Revenue was $10.37-billion compared with $10.4-billion a year earlier. (Loblaw sold its gas station operations.) Loblaw’s food retail same-store sales – a key retail measure – rose 1.9 per cent while drug retail sales grew 3.7 per cent.