Loblaw reports sales spike as pandemic worries sparked stockpiling

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A surge in demand for food and other essential goods because of COVID-19 accounted for $751-million in additional sales for Loblaw Cos. Ltd. in just the first three weeks of March.

The unusual level of demand provided a net earnings boost of 14 cents a share, the company said on Wednesday, as it reported its first-quarter results.

Loblaw’s revenue increased by $1.14-billion, or 10.7 per cent, to $11.8-billion in the three months ended March 21. Same-store sales – a key metric that does not include growth because of new store openings – grew by 9.6 per cent in the quarter at Loblaw’s grocery stores, and 10.7 per cent at its Shoppers Drug Mart chain.

As most restaurants closed their doors amid the pandemic, grocery chains captured a larger proportion of customer spending, Loblaw president Sarah Davis said on a conference call to discuss the company’s earnings on Wednesday. She added that shoppers have been somewhat less focused on price at the moment. However, the company is monitoring whether economic conditions could favour discount stores in the future.

“Within the store, we’re definitely seeing high growth in areas for people cooking from scratch – which we would have said prior to this COVID time would have been a declining area … now there’s a big resurgence," Ms. Davis said. Flour and other baking supplies have been in high demand, as have meat and produce. "We’re seeing strength in all of our key food categories.”

Canada’s major grocery chains saw shopper behaviour begin to change in March, as people stockpiled food and other essential goods because of the novel coronavirus. Loblaw said it saw a significant increase in both revenue and profit in that period, as well as higher costs.

Last week, Metro Inc. said its same-store sales were up 25 per cent in the four weeks from March 15 to April 11, compared with the same period last year. The week before, Sobeys parent company Empire Co. Ltd. reported that its same-store sales increased by 37 per cent in the four weeks beginning March 8, and 24 per cent in the two weeks before Easter, compared with the same period last year.

The initial rush of purchases has evened out somewhat in April, Ms. Davis said. However, behavioural changes have continued as people shop less often but buy more each trip. Loblaw owns grocery banners including No Frills, Loblaws, Provigo, Real Canadian Superstore, Valu-Mart and others.

Another feature of the pandemic has been significant growth in grocery e-commerce services, as consumers sought out home delivery or low-contact grocery pickup options. Loblaw’s PC Express service is seeing order volumes three times higher than normal, reaching a level the company did not expect to see for years, Ms. Davis said. There have been more rapid increases in its home-delivery service, which is fulfilled by grocery delivery company Instacart; but the majority of the online grocery business is still through the click-and-collect pickup service.

“We know that we have a lot of demand right now, and obviously wait times have been longer than we would have liked, which is why we’ve had to scale up our capacity in an incredible amount of time and have that flexibility. But we’ve been adding slots, we’ve been picking at night … adding capacity,” Ms. Davis said. The average waiting time for click-and-collect orders is now six days on average, she added, although that differs depending on the day and the location. The company’s goal is to get back to being able to fill those orders within one day.

Once the economy opens, Loblaw executives expect many customers to return to in-store shopping, but some of the e-commerce growth will lead to long-term changes.

“We believe that online grocery shopping will retain a significant proportion of the current sales penetration," executive chairman Galen Weston said on the call.

In the five weeks after the end of its first quarter in late March and through April, the company’s grocery same-store sales were up roughly 10 per cent, while drug retail same-store sales declined by about 6 per cent, the company reported. Demand for some categories continued to be strong through April, while spending on less-crucial “discretionary” items was down.

As with other grocers, Loblaw saw costs rise because of the threat of COVID-19. The main costs associated with the pandemic include higher pay for staff at its stores and distribution centres; expanding e-commerce services and dropping fees for some services such as click-and-collect grocery pickup; and increased protective measures such as cleaning, installing Plexiglas barriers at checkouts and hiring staff dedicated to ensuring physical distancing in stores. The cost pressures on the business accelerated in April. Loblaw estimated added costs amounted to more than $150-million so far.

Because of the pandemic, estimates of future performance for many retailers will have to be revised. Like others, Loblaw withdrew its guidance for 2020 earlier this month.

“There remains a high degree of uncertainty about the duration and impact of the COVID-19 pandemic on the Canadian economy. We expect continued volatility in our business as shopping behaviours continue to evolve, as does the demand for the types of products and services we provide,” chief financial officer Darren Myers said on the call on Wednesday. Loblaw shares retreated nearly 4 per cent Wednesday.

Loblaw reported net earnings of $276-million in the quarter, or 67 cents a share, compared with $206-million or 54 cents a share in the same period last year.

Grocery sales accounted for $8.3-billion in the quarter, while Shoppers Drug Mart sales were $3.3-billion. Revenue from the financial services segment was $266-million.​

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