As online grocery shopping booms in Canada amid the COVID-19 pandemic, Loblaw has expedited the launch of a next-day meal-kit delivery service.
On Monday, the company soft-launched a delivery service in the Greater Toronto Area (GTA) for its PC Chef Meal Kits, which offer ready-to-make dinners for two with pre-portioned ingredients and step-by-step instructions. Unlike many established meal-kit services, Loblaw does not require the purchase of a subscription. The soft launch will see the service operate weekly from Wednesday to Saturday.
Loblaw’s meal-kit delivery service soft launch comes days after its competitor Sobeys began testing its online grocery delivery service, which is powered by British grocer Ocado’s first North American automated warehouse. Both companies have been looking for ways to respond to changing customer behaviour; Canadians are proving less inclined to visit brick-and-mortar stores during the pandemic and are speeding up the shift to online food solutions. Loblaw said its service was part of its long-term strategy, but that it sped up the launch as it was “well-suited for the current pandemic situation.”
The venture comes as grocers race to adapt to a population that has become more averse to visiting brick-and-mortar stores during the pandemic. It also comes as Loblaw, Canada’s largest grocer, is facing increased competition from innovative rivals.
Though online retail giant Amazon has yet to make an aggressive play for the grocery sector in Canada as it has in the U.S., the prospect of it doing so has spurred Canadian grocers into action.
Last week, for example, British online supermarket Ocado Group launched its first North American automated warehouse in Vaughan, Ont., testing online delivery for Sobeys’ Voilà online grocery service—an endeavour that will offer up to 39,000 products and which Michael Medline, CEO of Sobeys’ parent Empire, has previously called a “game-changing e-commerce solution.” The Canadian online grocery market is growing at more than 30 per cent per year, according to Empire’s figures; the launch was long scheduled for spring 2020 as the first phase of the company’s efforts to build “the most advanced e-commerce infrastructure in Canada.” According to a January presentation to investors, Sobeys and Ocado plan to open a second automated warehouse in Montreal in 2021, to serve “major cities in Quebec and the Ottawa Area.” The company did not respond to a request for comment before deadline.
“Since 2017, there has been an awakening in the sector as grocers figured out that, because of the Amazon threat, they need to think about ways to get to the money, instead of the money showing up at their stories,” said Sylvain Charlebois, a Dalhousie University professor of food distribution. “[COVID-19] is asking the industry to go warp speed on change.”
Loblaw estimates the pandemic increased its revenues by $751 million in the first quarter of 2020 as Canadians stocked up on food and household essentials. However, the company also noted its customers were avoiding smaller, crowded stores after the initial wave of panic-buying, while online grocery sales rose by a factor of three to reach levels the company hadn’t expected to see for many years—a change Loblaw’s executive chairman Galen Weston said might continue into “any emerging new normal.”
“The pandemic has forced us, like all businesses, to make adjustments,” Nick Kuriya, vice-president of Loblaw’s meal solutions division, told The Logic. “It’s created an opportunity for us to deploy, at accelerated pace, a strategy that we already had…. We believe it’s an offering and a fulfilment model that would be well suited for the current pandemic situation.”
In August 2019, the company launched the meal kits as an in-store pilot program in 13 company stores in the GTA—including Loblaws, Real Canadian Superstore, Shoppers Drug Mart and one No Frills location—to solve what it had identified as the “dinner dilemma”: 60 to 70 per cent of Canadians didn’t know what they were having for dinner by 4 p.m. on any given day.
In mid-March, the company stocked the kits at all of its Loblaw-banner stores in Ontario, an expansion that coincided with the beginning of the pandemic in Canada. There was no “firm date” for the next phase—the online delivery option—but it was within the company’s medium-term plan, Kuriya said.
He believes the service solves two big problems the pandemic has posed to customers: buying something without interacting with other people, and creating “food opportunities that people don’t have access to” with restaurants still being closed.
Empire, too, is moving to take advantage of shoppers’ changing habits. In its April 15 COVID-19 update, for example, the company said it was delaying the opening of some of its stores and focusing on its e-commerce businesses, which it said had seen “a significant increase in orders through this pandemic”—an increase it predicted “will likely remain elevated in the long-term as customers become more comfortable with online grocery delivery.”
Charlebois thinks the pandemic could increase the probability of success of the new Loblaw service. The company has “the infrastructure and network across the nation” to support a robust meal kit program, he said. As running a physical store becomes more expensive, the online delivery service is “financially more appealing so a grocery company can have two dimensions: one virtual and one physical.”
As part of the soft launch, Loblaw has a delivery partner, which Kuriya would not name, citing a confidentiality agreement. The partner firm hires and pays its delivery people, who are not gig workers, he said.
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The next phase is to expand the number of cities and the delivery dates from four days a week to every day, as well as to add more menu options and family-sized kits. Kuriya said the meal solutions division functions “more like a startup.”
“Like any startup venture, growth is top of mind,” Kuriya said. “Online is an interesting channel for us.”