Loblaw says ‘overzealous’ data-algorithm use hampered sales in second-quarter

Canada’s largest grocery and pharmacy chain saw sluggish same-store sales at Loblaw Cos. Ltd. food stores in the most recent quarter as an “overzealous” attempt to implement algorithms using consumer data to increase profits ate into profits.

The company, based in Brampton, Ont., reported Wednesday a second-quarter profit of $286-million, essentially flat when compared with the same quarter a year ago. However, same-store sales, a key retail metric, grew just 0.6 per cent at the company’s grocery store banners, which include Loblaws, No Frills, T&T and Real Canadian Superstore.

Same-store-sales growth slowed from the same time last year when the metric moved up 0.8 per cent.

In the most recent quarter, retail traffic in the segment decreased, although consumers’ basket size grew.

“We are not content with that performance,” Loblaw president Sarah Davis said during a conference call with analysts Wednesday.

The low grocery-store sales growth figure came as the company created algorithms focused on profitability and increased margins – the amount by which revenue exceeds product costs – which decreased the emphasis on promotions to bring customers into the stores.

“You end up with fewer items on promotion in your flyer,” she said of the result, which dragged sales.

Loblaw started using data-driven insights in the first quarter of 2018, beginning with its market division, and then continued into other categories as it saw positive results with improvements in margins, she explained. By the third quarter of that financial year, some elements of the technology were being brought into Loblaw’s discount division as well.

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“We know exactly what we did and what we did was we focused on going for margin improvements,” she said on the call as analysts questioned the low same-store-sales performance. “And in the excitement of seeing margin improvements in certain categories as we started to implement some of the algorithms, people were overzealous.”

BMO Capital Markets analyst Peter Sklar pointed out that investors…

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