Grocery prices rise, e-grocery expands and loyalty grows at Loblaw

"The first important message is that we're very comfortable with our sales and tonnage performance in the quarter," said Loblaw CEO Galen Weston, when asked about rising food prices and the rate of inflation, during a call with analysts Wednesday morning to discuss the company's third-quarter earnings.

For months, the Brampton, Ont.-based grocery and pharmacy retailer—and its two largest competitors Sobeys and Metro—have said food prices would eventually increase at store thanks to recent pressures including increased minimum wage and transportation costs as well as government-imposed tariffs.

And though prices did increase, they did so on the lower range of what the company was expecting, said Weston during the hour-long conference call that focused, in large part, on food inflation and its impact on the company's bottom line.

"Our view of price increases is that it is coming in largely in line with our expectations, probably at the low end of the range that we anticipated in the quarter, but still in line with expectations," he said. Higher prices, higher traffic and higher basket gave same-store sales a slight boost (0.9%) in the quarter, which ended Oct. 6. Meanwhile, the company's drug retail division (Shoppers Drug Mart) saw same-store sales increase 2.5%.

"In our stores we delivered value to our customers and strong traffic and basket growth followed ... We're spending money where it matters and forgoing promotions that offer unclear value to customers or diminishing returns for our business," said Weston.

Loblaw said revenue was $14.45 million, an increase of $261 million compared to the third quarter of 2017. But, its third-quarter profit fell year over year as it was hit by a one-time charge related to a tax court ruling the company plans to appeal. "Our performance reflects the continued progress delivering our cost-saving initiatives, driving efficiencies and successfully mitigating headwinds," said chief financial officer Darren Myers of the company's Q3 results.

The company said it was focused on promotional effectiveness and building a leading omnichannel experience, among other goals. Weston along with president Sarah Davis provided additional insight and context about strategic priorities for the business.

E-grocery

The company continues to aggressively rollout its online grocery offering with click-and-collect, in-store pickup and home delivery, the latter offered through a partnership with Instacart. According to Davis, 70% of Canadians now have access to click and collect at 521 stores, while 60% of Canadians across 13 markets have access to home delivery. And, in the "coming days" home delivery will expand to five additional markets, she said.

Click and collect proved to be "very attractive" to Real Canadian Superstore shoppers, particularly in Western Canada, so the company is piloting a version of the service (orders are picked by employees but not taken out to the customer's car) at discount banners No Frills in Ontario and Maxi in Quebec.

PC Optimum

The company's loyalty program now boasts more than 15 million active users, who will earn more than $1 billion in rewards this year across its retail network and through partnerships with Esso and Mobile gas stations. Though penetration has traditionally been lower with its discount shoppers, Davis said its Superstore business is "the highest penetrated now in terms of the loyalty program," which is helping boost the company's performance in the west.

Cannabis sales

"Our focus continues to be medical marijuana," said Weston, though the company has a number of stores in Newfoundland that are licensed to sell recreational marijuana and are doing so. "We think about it as an experiment on our part to understand the recreational market to determine over time whether or not it's something we want to ambitiously pursue." He said the company is interested at this stage to explore cannabis sales, but it is not committed, he added.