E-commerce costs takes a bite out of Loblaw’s revenue gains last year

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Pandemic regulations that left consumers few choices but to dine at home helped dramatically boost sales at Loblaw Co. Ltd. in 2020, according to a year-end financial report released Thursday by Canada’s biggest supermarket conglomerate.

But it was also a tumultuous year for the grocer despite revenue gains of nearly 10 per cent. Loblaw faced national criticism over how much it pays its staff and how it treats suppliers — issues that drew scrutiny from the federal government — as well as mounting costs to constantly sanitize its stores and ramp-up its e-commerce operation to stay on top of a 178 per cent increase in online sales.

Loblaw, which owns No Frills, Real Canadian Superstore, Shoppers Drug Mart and Valu-Mart, reported revenues of $12.4 billion in its fourth quarter, up $818 million, or 7.1 per cent, over the previous year. For 2020, sales rose to $52.7 billion, from $48 billion in 2019 (though 2020 had an extra week).

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Loblaw sold $2.8-billion worth of goods through e-commerce last year as consumers let go of long-held skepticism of online grocery shopping and adopted the practice en masse. But meeting that demand online proved costly.

“Online grocery is a more expensive channel for us,” spokesperson Catherine Thomas said in an email on Thursday.

The company reported that the growth in e-commerce sales dragged down its operating income by $100 million, and its diluted net earnings per share by 20 cents.

“The shift from in-store to online is expected to be a headwind to profitability over the medium term,” said Thursday’s annual report, which also noted the company will improve its profitability on e-commerce “over time” as the system grows in scale and gets more efficient.

The company reported net earnings of $1.19 billion in 2020, up from $1.13 billion in 2019. Loblaw during the year spent roughly $445 million in “COVID-19 related costs,” including safety measures and $180 million in pay bonuses.

At the start of the pandemic last spring, Loblaw won public admiration for increasing wages for frontline staff by $2 per hour, then quickly lost it when the company — along with its two top competitors — cancelled the bonus programs on the same day in June 2020.

Top executives from Loblaw, Metro Inc. and Empire Co. Ltd., Sobeys’ parent company, were all summoned in front of a parliamentary committee to explain their decision to cut the pandemic bonuses.

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Later in the year, Loblaw courted controversy again when it raised fees for its suppliers. The move was seen to be following the lead of Walmart Inc., which outraged the Canadian manufacturing sector by mandating higher fees on suppliers to help cover the cost of ramping up Walmart Canada’s e-commerce and distribution operations.

Manufacturing advocates have also criticized Loblaw for reinstating fines when suppliers come up short on fulfilling orders, even though factories are operating at lower capacity due to sick employees and safety protocols during the pandemic.

“We will continue to partner with our suppliers to address any COVID-related challenges to meet customer needs and ensure we can all operate safely,” Loblaw said when it reinstated the fees last September.

Amid growing calls for action from a chorus of food producers and independent retailers, a committee of federal, provincial and territorial agriculture ministers committed to investigate the tensions in the grocery sector.

Lobby groups for independent business and manufacturers want the committee to recommend that Canada adopt a code of conduct for the sector, similar to one enforced in the United Kingdom.