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article imageCanada's Loblaws to close 22 stores, will start home delivery

By Ken Hanly     Nov 18, 2017 in Business
Brampton - Loblaws is planning to close 22 stores which are unprofitable. At the same time it will begin an Internet-based home delivery service which will start in December.
Loblaws cutting back to save costs and improve profits
The announcement of the closures comes almost a month after the company said it would cut about 500 corporate and store support positions.
The company did not indicate which specific stores would be closed.
Jim Danahy, CEO of CustomerLAB said: "What you've got is a healthy company pruning its garden."
The closures and cuts to staff will result in charges of approximately $135 million with most of the cost expected in the 4th quarter of this year. However, the cutbacks will save Loblaws about $85 million a year. The company expects the closures to be done by the end of the first quarter of next year.
Loblaws owns Zehrs, Provigo, and Fortinos stores. It also has several discount chains including No Frills, Extra Foods, and Real Canadian Superstore. Shoppers Drug Mart is also owned by Loblaws.
Company to begin delivery service in December
The service will start first on December 6th in Toronto with service also slated to begin in Vancouver in January of next year. It is expected to expand to other cities during 2018.
The service will be offered through Instacart, a grocery delivery service, that already operates in 150 markets in the US.
Orders online from Loblaws, Real Canadian Superstore and T & T stores will be shipped to customers' homes in as little as an hour according to the two companies.
In Toronto Instacart will be competing with Grocery Gateway that is already operating in the city.
Jim Danahy said that Loblaws was under competitive pressure to provide the delivery service. Danahy said: "This is totally predictable. It's been a question of how to find the scale and the formula and the technology as they all evolve in what is nothing less than a space race."
Instacart
This will be Instacart's first venture into Canada.
Service in the US is mainly provided through a smartphone app, that works on IOS and Android platforms apart from its website. Customers are able to use Android Pay and Apple Pay.
Customers select groceries through a web application from retailers who have the service and are delivered by a personal shopper.
In March of this year Instacart agreed to pay $4.6 million to settle a class action suit that claimed the company had been misclassifying its shopper employees as independent contractors. Among 18 violations were improper tip pooling plus failure to reimburse its employees for business expenses.
Inside the Loblaws  store
Inside the Loblaws 'store
Digital Journal
Loblaws faces headwinds and stiff competition next year
Loblaws' CEO Galen Weston said: "Given all the headwinds, we expect 2018 will be a very difficult year." He said potentially the problems were greater than what the company has faced up to now.
The chain is facing stiff competition from Amazon that purchased organics grocer Whole Foods Market. It is expected to expand its online food services. This will put pressure on competitors such as Loblaws to offer comparable services.
Loblaws already offers a "click and collect" service at many stores. Consumers can choose groceries online and then go and pick them up at the store.
The service has been successful and Weston said the company would expand it to reach more than thirty percent of the Canadian population.
Nevertheless, Kaan Yigit of Solutions Research Group claimed that consumers prefer "no fuss" deliveries to the home rather than the click-and-collect model. Yigit said: "I am not sure that you can be a consumer-facing 2017 company and not offer a true mobile contact point and a delivery option, especially in the largest markets'"
Those who want delivery service will pay a premium for the convenience: "The Instacart delivery fees will range from a low of $3.99 (Canadian) depending on the size of the order and deliver time, to as high as $9.99 for one-hour shipments of an order of less than $35. And there will be an added service fee of 7.5 per cent of the value of the order. Home-delivered grocery prices will be higher than Loblaw's regular prices. "
Shoppers will order from local Loblaws, Real Canadian Superstore or T and T locations through the Instacart website or their apps. Instacart will then pick, pack and deliver the orders.
Loblaw has yet to disclose the prices but Weston says that prices could be modified. He says the company has a road map to reach profitability in e-commerce but declined to say how long it would take the company to reach its destination.
A Loblaws store is pictured in Ottawa
A Loblaws store is pictured in Ottawa
Chris Wattie / Reuters
Loblaws profitable in third quarter of 2017
The company more than doubled their third quarter profits to $883 million or $2.24 a share from just $419 million or $1.03 a share last year in the same quarter.
Revenue rose to $14.19 billion from $14.14 billion last year.
The company had a one time gain of $432 million from the sale of its gas station business to Brookfield Business Partners.
Loblaws has over 2,000 stores in Canada and has headquarters in Brampton Ontario.
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