Loblaw Triples Digital Earnings in 2020

Need to Know

• The Canadian grocery retailer reported this week that its online sales spiked 179% in 2020 when compared to digital sales in 2019.
• Loblaw sold $2.8 billion in goods through e-commerce last year.
• Overall sales for 2020 hit $52.7 billion, up from $48 billion in 2019; the company’s net earnings for the year hit $1.19 billion.
• The surge in digital sales comes as Loblaw focuses on new online channels such as healthcare.

Analysis

Loblaw saw huge digital gains in 2020, as the COVID-19 pandemic pushed more customers towards online grocery shopping and e-commerce in general.

The grocery conglomerate reported this week that its digital sales for 2020 increased by 179% year-over-year, with the company’s total online sales hitting $2.8 billion. Total sales for the company hit $52.7 billion, up from $48 billion in 2019, with net earnings reaching $1.19 billion in 2020.

While the digital spike is impressive, Loblaw president Sarah Davis acknowledged on an earnings call this week that the shift towards e-commerce presents “complicated” challenges for the company, including a loss of $100 million in operating income due to online sales.

“The rise of digital retail has been dramatic,” Davis said on the call. “We know this is where retail is headed, but it creates a challenge. Online grocery is a higher-cost channel. So we are taking steps to manage margin impact over the medium term while maintaining our leadership position.”

Loblaw also saw significant COVID-19-related costs in 2020: on the earnings call this week, the company cited $445 million in “COVID-19 related costs,” including ramped-up safety measures, and $180 million in pay bonuses. On the earnings call, Davis noted that the massive revenue spike — online and in-store — is not expected to maintain throughout 2021, as vaccines roll out and customers are able to return to restaurants, adding that Loblaw, which operates the Shoppers Drug Mart chain of pharmacies, is a key player in Canada’s vaccine rollout.

“Our supply chain can deliver vaccines the day we receive them and we can administer one million shots per week,” she said, noting that some Alberta pharmacies will begin administering the COVID-19 vaccine next week, “but we have not been given the rollout strategy across all the provinces or the timing yet.”

Loblaw’s investments in digital infrastructure and telehealth led to spikes in e-comm sales for the grocery chain throughout 2020: in Q3, for instance, Loblaw saw its online sales spike by 175% year-over-year. The grocery retailer has made a number of significant healthcare partnerships over the course of the year, all designed to better offer health and pharmacare to customers remotely. These included an investment in healthcare startup Maple, and most notably the launch of PC Health, a digital healthcare ecosystem introduced in partnership with League in October and expanded earlier this year. The company also launched a third-party online marketplace in November of 2019.