Loblaw's Problem With Data-Driven Algorithms
Loblaw’s strategy of using data-driven insights to drive increased margins impacted the retailer’s same-store sales in its latest quarter.
That’s according to president Sarah Davis, who spoke on the data issues during the company’s recent earnings call.
“We slipped outside of our stable trading range on same-store sales comps in our food business,” said Davis. “We are not content with that performance.”
Loblaw Companies’ net earnings in its second quarter of 2019 were $286 million. This number was down $7 million compared to the second quarter of 2018. Same-store sales at Loblaw’s food retail stores rose just 0.6% in the second quarter, while its same-store sales growth was 4% at its drug retail stores (Shoppers Drug Mart).
“What happens with when you ask people to develop algorithms focused on profitability and increased margins is that's exactly what you get,” Davis explained.
“It actually does bring down the promotional intensity,” she continued. "So you end up with fewer items on promotion in your flyer and that does have an impact on sales.”
However, Davis said Loblaw’s knows how to correct the problem. The company began using data-driven insights in Q1 of 2018, expanding into additional categories as the retailer saw positive results.
“In the excitement of seeing margin improvements in certain categories as we started to implement some of the algorithms, people were overzealous, as we all enjoyed the additional margins that we were seeing, and so we know what we did,” explained Davis. “So we know what we can do in order to change it.”
However, Davis noted while the company may be tweaking the algorithms, it won’t be a “knee-jerk reaction” thus “you're not going to see a radical change in Q3.”
“We're very committed to our strategy of using data-driven insights in order to improve our gross margins,” she further explained. “We know exactly where we need to make these targeted investments. We've already started to make the investments. We know the categories, we know the banners and we've already started to do that.”
Executive chairman Galen Weston also noted in the call “our commitment to data-driven insights and process and efficiency has not changed.”