Loblaw expanding online grocery business across Canada and hiking quarterly dividend

Canada's largest grocer plans to "blanket the country" with online grocery services this year, says the head of Loblaw Companies Ltd.

Loblaw, which launched home delivery services in its first market late last year, will expand the offering to five more areas this year. Shoppers in Montreal, Halifax and Regina will be among those who can try the new service. It is currently available in 11 markets, including Toronto and Vancouver.

The retailer also plans to expand its click-and-collect program, which allows customers to order groceries online and pick them up, with 500 new pickup sites this year. By the end of 2018, the retailer aims to have more than 700 pickup locations. These will include additional grocery stores and GO Train stations in Ontario, as well as several Shoppers Drug Mart locations — with the first several expected in the coming weeks.

The company is looking for ultra-convenient pickup spots for customers, said Galen Weston on a conference call with analysts after the company released its first-quarter earnings report.

By the end of the year, 70 per cent of Canadians will have access to the company's click-and-collect and home delivery services, the company said.

The Amazon threat

Canadian grocers have recently started to focus heavily on their e-commerce offerings, including home delivery options, after tech titan Amazon acquired Whole Foods Market and its Canadian locations last year.

Metro Inc. announced in November that it would bolster its e-commerce options, including launching services in Ontario.

Sobeys Inc. made its plans public about two months later, saying it signed a partnership deal with British company Ocado Group to help build its online shopping business. It plans to build a customer fulfilment centre in the Greater Toronto Area and launch the service in about two years.

Some experts have questioned whether a two-year wait is too long and will result in the grocer losing some customers to other chains able to fill the gap in the interim. But Sobeys is confident in its plan.

Loblaw is relying on a different model, partnering with California-based Instacart to provide delivery services already rather than wait to build a distribution centre. Shoppers use the Instacart website or app to order food from participating Loblaws and other chains. Instacart picks up and delivers the orders.

It's interesting that Canadian grocers have taken different strategic approaches to implementing delivery, said Weston.

Loblaw also looked at a central fulfilment model, Weston said, but feels very confident on the path it's on.

"The thing is, none of us can really predict, you know, where things are going to end up," he said.

Doug Stephens, founder of Retail Prophet, said "I think that every grocery store including Loblaws has to not only just make some linear improvement in what they do, they really have to make a quantum change in their ability to serve customers online, to deliver fast to really win over the online customer, because that's definitely something that's going to be in play for Amazon and Whole Foods."

He said, "I think that a company like Loblaws shouldn't just be saying, 'How can we play online with grocery?' The question is "How can we redefine the online grocery shopping experience?'"

Hiking quarterly dividend

The announcement came as Loblaw raised its quarterly dividend to 29.5 cents per share from 27 cents per share and reported improved quarterly earnings.

Loblaw earned a profit attributable to common shareholders of $377 million or 98 cents per diluted share on $10.37 billion in revenue for the first quarter ended March 24. That compared with a profit of $232 million or 58 cents per share on $10.40 billion in revenue in the same quarter last year.