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Loblaw closing 22 stores, launching home delivery ahead of 'difficult year'


VANCOUVER — Loblaw Companies Ltd. is closing 22 stores and launching home delivery in two major Canadian cities, ahead of what it believes will be a challenging new year.

The grocery and pharmacy giant has finalized a plan that will result in the closure of 22 unprofitable stores across a range of its banners and formats, said spokeswoman Catherine Thomas in an email, who declined to provide specific store locations. The store closures are expected to be mostly complete by the end of the first quarter next year.

"We are excited about our future. But given all of the headwinds, we expect 2018 will be a very difficult year," said Galen G. Weston, Loblaw CEO, during a call with analysts following the company's earnings report.

Canadian grocers face increasing pressure from several fronts, including discount and online retailers, and pending minimum wage increases in some provinces.

Loblaw has already made several moves in recent months that some analysts attribute, at least in part, to cost pressures. The company recently announced a new handling fee on its largest suppliers and announced last month that it was laying off 500 employees from its office operations. The company did not immediately answer whether that figure encompassed the job losses from the upcoming store closures.

The retailer is also doubling down on its e-commerce offerings, including launching home delivery with California-based Instacart in Toronto starting Dec. 6 and Vancouver starting January 2018.

Shoppers will order from local Loblaws, Real Canadian Superstore or T&T locations via the Instacart website or app and the company will deliver the food.

"This is a premium service targeted at customers who are looking for the ultimate in convenience," Weston said.

Deliveries will cost $3.99 for orders of $35 or more — that jumps to $5.99 for one-hour drop off — and $7.99 for orders under $35, said Nilam Ganenthiran, Instacart's chief business officer.

Customers will also pay a 7.5-per-cent service fee, said Thomas, adding prices will be higher online than in stores and shoppers will see different sales on Instacart than in physical locations. Shoppers won't be able to order alcohol online, or earn or redeem PC Plus points through Instacart.

Loblaw, which said in 2016 it had no plans to launch home delivery due to lack of customer demand, plans to expand the program rapidly next year.

In the U.S., Instacart aims to serve 80 per cent of households, said Ganenthiran. It will aim to do the same in Canada, which would require a presence in about 20 to 25 cities, he said. That could include partnerships with other grocers in the future.

Canadians currently have few options for grocery deliveries, with companies like Grocery Gateway and select large chains offering the service in limited locations. Walmart, for example, announced in March it would start delivering groceries to customers living in certain parts of Toronto and the surrounding area.

Most grocers, including Loblaw and Walmart, have opted to focus heavily on in-store pick-up for online orders instead. Loblaw launched its click-and-collect offering in 2014 and now offers it at nearly 200 locations. Weston said the company remains very committed to the program and is opening a new location nearly daily.

However, Amazon's recent acquisition of Whole Foods Market increased speculation that Canada's grocers would have to step up on home delivery offerings.

Weston said that recent initiatives, including combining PC Plus and Shopper Optimum points into a harmonized loyalty program beginning in February, expanding click and collect and launching home delivery, are key ingredients in the company's strategy "to compete and win in a rapidly changing and increasingly digital world."

Loblaw reported that it more than doubled its third-quarter profit compared with a year ago as its results were boosted by the sale of its gas bar business.

The retailer said its profit attributable to common shareholders totalled $883 million or $2.24 per diluted share for the 16 weeks ended Oct. 7. That compared with a profit of $419 million or $1.03 per diluted share for the same period last year.

Revenue totalled $14.19 billion, up from $14.14 billion in the third quarter of 2016.

The results included a $432-million gain on the sale of the company's gas station business to Brookfield Business Partners.

 

Follow @AleksSagan on Twitter.

Aleksandra Sagan, The Canadian Press

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