Canadian grocer Loblaws grows digital offerings to keep Amazon at bay

Loblaws, Canada’s largest grocery retailer, is on a digital push to keep its highest-value customers loyal.

The retailer is quickly upgrading its digital experiences and loyalty program as Amazon and Walmart gain market share in Canada. Loblaws expanded online grocery pickup to reach 75 percent of the Canadian population, and began a tie-up with Instacart to offer grocery delivery in late 2017. It’s also testing a partnership with startup Freshfood to offer customers discounts on products that are nearing their expiration dates. Loblaws’ investments in digital, supported by an Amazon Prime-style loyalty program that costs customers $75 a year, are the retailer’s protective barrier against the encroachment of big competitors.

“It’s in anticipation of Amazon building something [in grocery retail],” said Amar Singh, senior analyst at Kantar Consulting. “It’s trying to build a strong omnichannel presence, and they want to have a consolidated platform to grow loyalty with the PC Insiders program.”

Loblaws, which generated $36 billion in revenue last year, is no danger of losing its crown as the top grocery retailer in Canada. In online grocery, however, it risks ceding ground to competitors without a menu of services to cater to those customers. Its e-commerce sales last year were more than $381 million, according to the company.

“It’s a standard digital playbook,” said Forrester retail analyst Sucharita Kodali. “You need to figure out a way to retain your customers.”

While Amazon isn’t a significant component of the Canadian online grocery market, its appeal among digital-first shoppers is causing Canadian grocery retailers to build out their e-commerce offerings at a rapid pace. According to a poll carried out by Vancouver-based NRG Research Group last year, Amazon and Walmart are making headway among Canadian online grocery shoppers. The study found that 62 percent of Canadians who buy their groceries online say they buy them on Amazon, 37 percent buy them at Walmart and 23 percent purchase them at Loblaws. As Loblaws grows its online and delivery options, No. 2 retailer Sobey’s last year entered into a deal with U.K.-based Ocado, with whom it will develop an automated warehouse in Toronto to speed up fulfillment for e-commerce orders.

While 2018 was about scaling Loblaws’ digital services, 2019 will be about execution, with further investments in technology to drive customer adoption and satisfaction, Loblaws president Sarah Davis told investors on a fourth-quarter earnings call Thursday.

The company’s digital efforts are seen as a differentiator as other big-box brands rush to keep up.

“The rapid ramp (and traction) of Loblaw’s digital food initiatives, for online (food heavy) sales in excess of $500 million [Canadian]  is, in our opinion, not only impressive but should also give key competitors pause,” wrote Raymond James analyst Kenric Tyghe, in a recent report.

Features like online pickup and home delivery are becoming table stakes as more customers turn to e-commerce for grocery purchases. While online pickup for digital orders has performed well in the U.S., it’s still in an early phase of growth in the Canadian market, said Singh. With the potential for higher basket sizes, it’s an opportunity.

Singh added that Loblaws is smart to expand online pickup given its significant physical-store presence across the country. Loblaws operates more the 2300 retail stores across Canada, including Loblaws, Real Canadian Super Store, No Frills, Shoppers Drug Mart drug stores and Joe Fresh apparel stores.

Despite the flurry of digital upgrades, focusing on upmarket customers through fee-based grocery pickup, delivery and annual Prime-style PC Insiders memberships could open up room for competitors to gain ground with value-conscious shoppers, said Toronto-based retail analyst Bruce Winder.

“It somewhat insulates them [from competition,] but it’s not bulletproof because if you look at Loblaws’ business, it’s skewed toward the more affluent consumers,” he said. “They have some vulnerability for the lower-value customers who may go to Walmart or Amazon.”

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