Data-driven algorithms focused on driving higher margins led to fewer promotions and sluggish same-store sales in Loblaw's second quarter, according to its president Sarah Davis.
Canada's largest grocery and pharmacy chain reported $286 million of net earnings (essentially flat compared with the same quarter a year ago) for the 12 weeks ended June 15, while same-store sales from food retail was up a mere 0.6%.
"What happens when you ask people to develop algorithms focused on profitability and increased margins is that's exactly what you get," Davis told analysts and media during the company’s second-quarter earnings call Wednesday morning. "You end up with fewer items on promotion in your flyer and that does have an impact on sales."
Loblaw implemented data-driven insights in the first quarter of 2018 with certain categories within its market division and continued into other categories as the strategy gained momentum and yielded positive results, said Davis. As margins improved, the retailer started introducing insights and technologies into its discount division, she added.
As margins continued to improve, Loblaw continued to add categories. But the company was less pleased with its sales results in the first quarter of this year and started to make some changes, Davis said. These changes coupled with inflation resulted in a more price-sensitive consumer, she said.
"So if you only have $100 to spend in a week and you're seeing some inflation and you're seeing some change in promotional activities, it had an adverse effect," she said.
Despite a few bumps in the road, Davis said the company was still committed to the strategy and also aware of the changes needed to be made to improve its results.
The company has, however, been refining its food offering at Shoppers Drug Mart, which is now available at more than 100 stores and in most major markets. "This is paying off, driving traffic and basket gains with very strong comp sales," said Davis.
Some other highlights from the last quarter included increased PC Optimum penetration rates, improved e-commerce sales and service metrics, in addition to "well-received" advertising including the No Frills Hauler campaign. Davis said online videos had been viewed more than 100 million times.