Online grocery and loyalty points a focus for Loblaw

With a tough fourth quarter behind it, the grocery company continues to concentrate on what works

It was a tough quarter for Loblaw Companies Limited as it grappled with expenses incurred by the launch of its PC Optimum loyalty program and fallout from an industry-wide bread price-fixing scandal.

The country's largest food retailer reported its fourth-quarter profit dropped to $19 million from $201 million a year earlier. While Loblaw cited mitigating factors such as an increase in minimum wage and healthcare reform, the alleged bread price-fixing scheme was certainly one of the most publicized challenges. But it was also a topic the company declined to comment on during a conference call with analysts last week as it continues to cooperate with the Competition Bureau during its investigation.

In December, Loblaw and its parent company George Weston Ltd. admitted their participation in what they have called an industry-wide arrangement to co-ordinate the price of bread for at least 14 years. Days later, with the threat of civil liability looming, Loblaw offered customers a $25 gift card as a goodwill gesture -- a move the company said cost $107 million.

During a conference call with analysts, CEO Galen Weston did address a number of other issues related to the company's performance and plans for growth. Here's what we learned:

Straight to the points
Loblaw recently merged its Optimum and PC Plus points loyalty programs -- arguably two of the country's strongest rewards programs -- under the PC Optimum brand. This marked a significant financial investment for the company, which recorded a $189 million charge related to the merger. The costs were associated with a higher anticipated redemption rate of points and data management to support the existing loyalty programs.

Though faced with technical glitches at its Feb.1 launch, Weston said the program was tracking well with approximately six million shoppers already converted to the newly minted program. Weston acknowledged the process of merging points had been more difficult for customers than the company would have liked, but said the PC Optimum website and app sees more than one million visits a day and members have earned and redeemed points more than 32 million times since launch.

"In a future defined by those who understand their customers best, a personalized loyalty program with which millions of Canadians get engaged every day represents a unique opportunity by offering us a single view of our customers all across our retail stores, services and digital platforms," said Weston.

Before "ramping up the full promotional engine," Loblaw is focused on migrating customers to the new program "as quickly, as effective and as seamlessly as possible," said Weston. "But we do expect it to have a positive influence on our top-line sales and how efficiently promotions are delivered to customers."

Click and collect complements home delivery

Though competition continues to increase with online home delivery services, Weston feels strongly that click and collect is still an important opportunity for Loblaw. Click and collect plays a significant role in online grocery shopping, he said. At the end of Q4, 300 stores offered click and collect and the company is adding the service to approximately one store per day.

"We have a high level of conviction around the attractiveness of click and collect proposition," he said. "If you look around the world it's significant part of online grocery shopping in pretty much every region and every country."

Still, home delivery will play a role in the company's e-commerce strategy moving forward as evidenced by its partnership with Instacart. The company's objective to ensure that as many Canadians as possible have access to either click and collect or home delivery, said Weston.

Inside job

In November, Loblaw began piloting a fee-based subscription service to offer “value and convenience” to those shopping its stores and e-commerce sites. Called PC Insiders, the program offers perks across a range of Loblaw’s products, brands and services, and costs $9.99 per month or $99 a year.

Weston said the pilot is tracking ahead of expectations in terms of adoption and generating useful insights on how its customers shop. "Ultimately, that program really has the most significant opportunity for scale when you combine it with PC Optimum," he said. The company will look at a wide scale launch of PC Insiders once PC Optimum is fully operational.

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