What we learned from Loblaw, Weston Foods earnings calls

Here are the key things we learned from last week’s Q2 earnings reports from Loblaw Companies Limited and Weston Foods Limited.

 

Amazon a ‘different and compelling’ threat

Loblaw Companies Limited CEO Galen Weston Jr. said Loblaw would be watching to see how Amazon integrates its Whole Foods offering in the U.S. in order to better compete with the online retailer. He said Canada typically benefits from five to six years of advance notice when it comes to new business models.

“The retailers who are facing these threats respond,” he said in a call with analysts after releasing the Q2 numbers. “They make strategic changes, they take costs out of the business, they change the way they meet customer demands. You should expect us to do similar things.”

Weston said the company already had a “thoughtful and robust” e-commerce strategy in place. “We feel confident about that strategy and its potential, but we are still in the very early stages.”

 

No new hard discount banners on the horizon

Loblaw trialed a banner called “the Box” in select markets in 2014, but has no plans to introduce a hard discount concept to compete with the possible arrival of German banners Aldi and Lidl.

“We concluded that developing our own small hard-discount was not a strategy we wanted to pursue,” said Weston. “We have a lot of confidence in our existing hard discount formats – we think they bring an enormous amount to bear and that they are powerful assets that with the right strategic, tactical and operational improvements are the place that we’re going to fight any eventual arrival of the German hard discounters.”

 

Click and collect is a hit, but no current plans for home delivery

Weston said Loblaws has fulfilled more than 1 million customer orders since introducing its click-and-collect service two years ago.

Loblaws currently offers click and collect at 140 of its busiest stores, with Weston telling analysts that number would grow to more than 200 by the end of the year. Weston did not provide details on click and collect’s financial contribution, but said the company considered it a “promising” channel.

Basket sizes for click and collect customers tend to be larger, with convenience playing a key role. “If you can serve up products that meet those convenience needs intelligently, are prone to adding incremental items to their basket,” he says.

Weston said the company had no immediate plans to introduce home delivery. “At this stage we feel that click and collect should be the predominant strategic focus for our business, but our job is to meet customers’ needs,” he said.

 

Cool start to summer impacts seasonal sales

Weston Foods continued to build capacity in its frozen cake, doughnuts and pie businesses, but Weston admitted it had been a “tough” spring and summer for seasonal items such as hot dog and hamburger buns.

While Weston continued to enjoy “robust” growth in sweet goods and artisanal breads, its fresh bread business experienced a decline as consumers continued to “shift away” from commercial bread.

“We feel very good about the way our fresh bread business is performing, in what continues to be a slow and steadily declining market,” said Weston. “There’s been no meaningful change in that trend.”

In the Loblaws unit, Weston said the cooler spring negatively impacted both garden centre sales and sales of barbeque-related items.