Walmart Canada Investing $3.5-Billion to Boost E-Commerce, Renovate Stores
Walmart Canada plans to invest $3.5 billion over the next five years with a focus on technology to make so-called “smarter stores.” In a statement on July 20, the company said that, “the investment will impact every aspect of the business,” adding that it comes as its Canadian business grows, with grocery and e-commerce gaining “significant momentum.”
The spending includes $1.1 billion to build two new distribution centres in Vaughan, Ont., and Surrey, B.C., as well as to renovate an existing facility in Cornwall, Ont. The investment will create hundreds of construction jobs in Canada and forge partnerships with Canadian high-tech companies, Walmart Canada said. It will also renovate 150 stores, or more than one-third of its total network of more than 400 stores in the country, over the next three years.
It plans to accelerate digitization to make its stores smarter, which will include expanding electronic shelf labels and shelf scanners to monitor product volumes. Walmart Canada will revamp checkouts with larger self-checkouts, as well as giving employees technology to allow customers to check out items from anywhere in the store. The company said it will also expand robotics and computer vision cameras, which will help with efficiency and accuracy.
Walmart Canada also aims to offer a complete merchandise pick-up service at about 270 branches, or 70% of its locations in Canada, by the end of this year. It will pilot what it called hybrid locations that have micro fulfilment centres in an effort to increase pickup and delivery order speeds.
Walmart Canada’s chief executive Horacio Barbeito said the investment is meant to allow the retailer stay on top of Canadian shopping habits, which have shifted drastically in the pandemic. The crisis has accelerated trends in e-commerce, with Walmart’s Canadian operations doubling or tripling their online grocery order volumes in some regions.
The investment will ensure Walmart Canada develops an enviable supply chain, said John Bayliss, senior vice-president of logistics and supply chain, in a statement. “The better the supply chain, the quicker our customers can get the products they want.”
Empire to Invest $2.1 Billion Over Three Years to Expand, Grow Earnings
Empire Company Ltd., which owns the Sobeys and Safeway grocery chains, plans to spend $2.1 billion over the next three years on building and renovating stores, expanding its e-commerce offering and growing its private label portfolio as it drives to add $500 million in annualized earnings. The new strategy, dubbed project horizon, is focused on growing its market share and building on cost efficiencies it started to realize with its previous three-year strategy project sunrise, which recently wrapped. It achieved more than its savings target of $550 million.
Michael Medline, CEO, highlighted the urgency for the industry amid the COVID-19 pandemic — though the plan’s financial target of a $500 million increase in yearly EBITDA (earnings before interest, taxes, depreciation and amortization) does not include impacts related to the global crisis. “As the retail landscape in Canada continues to react and shift under the seismic waves caused by the pandemic it is clear now, more than ever, that we must be able to serve customers where, when and how they want to shop,” he said.
The focus on growing market share includes accelerating plans for the company’s two e-commerce fulfilment centres that have yet to be built. Empire partnered with British firm Ocado to build four robotics fulfilment centres in Canada. It opened the first in the Greater Toronto Area in June, and the second one in Montreal is under construction. Empire expects that the automated warehouse will start operating in early 2022 thanks to a slight construction delay due to the pandemic. Empire will “accelerate” plans for the two remaining fulfilment centres in Western Canada.
It will also test a store pick solution also using Ocado’s technology at the end of the summer in Nova Scotia that will offer online grocery home delivery from a large selection of products. It plans to expand that service across the country over several years, focusing on areas without the density to justify a fulfilment centre and as an interim solution where its fulfilment centres will be built.
The company also plans to grow its market share by investing in its store network, improving store space productivity, growing its private label portfolio and providing personalized communication and offers to customers. Empire will add about 20 new Farm Boy locations in Ontario and convert between 30 and 35 conventional stores in Western Canada to FreshCo. The company will continue to build “on cost and margin discipline” by using technology to improve its systems and processes, optimize its supply chain productivity and other measures.
The new plan is “essentially consistent with expectations,” said Irene Nattel, an RBC Dominion Securities Inc. analyst, in a note. Though, the planned spending and targeted benefits are above current forecasts, she said. She noted Empire currently lags behind competitors Loblaw and Walmart “in terms of national e-commerce availability and share of wallet.”
Loblaw’s Profit Falls as Higher Costs Offset Grocery Revenue Surge During COVID-19 Pandemic
Loblaw Companies Ltd., the biggest network of supermarkets in Canada, said pandemic-related wage increases for front-line staff and a decline in pharmacy sales pushed down profits in its second quarter despite soaring demand for food during the coronavirus crisis. Food sales at grocery giant, which includes Real Canadian Superstore, Shoppers Drug Mart and No Frills, hit $8.7 billion in the quarter ending June 13, up $889 million compared to a year ago. But Loblaw’s net earnings available to common shareholders dropped 40.9% to $169 million compared to last year.
“Conditions in the second quarter were unusual and challenging,” Loblaw executive chairman Galen Weston told investors on a conference call.
Loblaw said the sagging profits had to do with the $282 million it spent on safety measures in stores and a $2/hour bonus for front-line staff. The pay premiums alone cost $180 million. Pandemic-related costs have dropped significantly in recent weeks, with Loblaw reporting a total of $19 million on safety and security measures in the first four weeks of its third quarter, from mid-June and early July.
Loblaw also experienced a surge in demand for its e-commerce options so far during the pandemic, which created additional costs. The company’s e-commerce business grew 280% in the quarter, Davis said. So far this year, Loblaw has totalled $1.2 billion in e-commerce sales to surpass its 2019 full-year total of $1 billion. The company scaled its program, including adding several micro-fulfilment centres, adding costs that were expected to come later.
Loblaw president Sarah Davis told investors the pandemic hurt Loblaw’s massive pharmacy business, including Shoppers Drug Mart, with drooping sales in cosmetics and prescriptions, since most stopped making non-emergency trips to the doctor for fear of contracting the virus. Drug store revenue was $3.02 billion in the quarter, down $27 million compared to last year — with an $88-million decline in prescription pharmaceutical sales offset by stronger sales in front-of-store goods.
Total revenue for across Loblaw’s food, drug and financial services businesses was up by 7.4% to roughly $12 billion. In a note to investors, CIBC analyst Mark Petrie said Loblaw’s earnings “were ahead of our expectations.”