Mythbusters: Were Overzealous Algorithms Responsible for Slow Sales at Loblaw Companies Ltd?

Well, this is new.

Retailers have blamed bad weather for poor sales before, but I don't think I've ever seen a retailer blame bad algorithms.

Loblaw Companies Ltd, Canada's largest grocery and pharmacy chain, which owns the mainstream brand Loblaws and discount brand No Frills, had a soft Q2 performance with same-store revenue growing 0.6%. Their President, Sarah Davis, blamed the performance on algorithms that prioritized increasing profit margins instead of promotional pricing to attract foot traffic. That is, Loblaw chose to increase the revenue from each customer instead of focusing on increasing the number of customers. She says:

We know exactly what we did and what we did was we focused on going for margin improvements...And in the excitement of seeing margin improvements in certain categories as we started to implement some of the algorithms, people were overzealous...You end up with fewer items on promotion in your flyer. 

Are the data scientists at Loblaw really running wild with their overzealous algorithms and causing there to be fewer items on promotion in flyers, and, ultimately, softer sales? 

Davis' statement was a Mythbusters challenge that I couldn't resist, so I did some research. 

I looked at the Ontario flyers for No Frills and their competitors, Food Basics (Metro), and FreshCo (Empire) over the same time period in May 2019 and 2018. I selected a total of 10 items - a mix of produce, meat, and dairy - that were posted in the flyers for all 3 grocers so that I could price compare. I consider an item on promotion if it has the lowest price out of the three grocers. The goal was to determine how many items where No Frills was the price leader in 2019 or 2018.  


Out of the 3 discount grocers, No Frills ranked 2nd place for being the price leader in both 2019 and 2018. This finding leads me to believe that they did not run any more promotions last year when compared to this year, and certainly the impact of algorithms may be overstated. 

There is, however, one qualifier: in 2018, No Frills ran a promotion for their loyalty program, PC Optimum, offering a bonus for spending a certain amount. Could it be that not including this promotion caused slower sales this year?

Well, taking a look at Q2 same-store sales growth for the past 2 years, it's clear that Loblaw Companies was slowing down even in 2018 when compared to Metro & Empire. 

At this point, I would say, myth busted. There was no difference in flyer promotions when comparing last year to this year and same-store sales growth has been slowing since 2018...which means, the data scientists and their algorithms can take a sigh of relief.

So, how can Loblaw Companies turn this around? Here are 3 flyer suggestions.

Be price comparable or price match

Metro and Empire have trained customers over the past year that their stores offer the best prices. The grocer discount channel is a growth area in food retailing, and is becoming even more competitive as Empire aggressively converts their under-performing Sobeys stores into FreshCo locations. No Frills needs to be price comparable.

Highlight fresh food offering

When I reviewed the flyers, I got the sense that Food Basics had a better complete grocery offering by focusing on produce and fresh foods, whereas, No Frills was focused on packaged dry goods. The drop-off between the primary brand and discount brand seems larger for Loblaw, which is a challenge if consumers are switching to discount brands. 

Continue leaning into the direct-to-consumer channel, the PC Optimum loyalty program

PC Optimum may be one of the strongest loyalty programs in Canada, and from my perspective, has surpassed Metro's Air Miles program. A direct-to-consumer brand relationship is quickly becoming one of the few remaining competitive advantages in markets where products are commoditized. Loblaw Companies should continue promoting offers in flyers to acquire new users - whether by mobile app or points card. The data generated will let them put their data scientists in a position to drive top-line business outcomes.


  • I own a long position in Loblaw Companies Ltd.
  • Basket items
    • 2019: Steak, Chicken Breast, Corn, Tomatoes, Watermelon, Sweet Peppers, Mushrooms, Blueberries, Ice Cream, Yogourt
    • 2018: Steak, Chicken Breast, Ribs, Corn, Tomatoes, Watermelon, Sweet Pepper, Mushrooms, Cucumber, Strawberries
  • Empire's quarterly end dates are mid-quarter when compared to the normal fiscal end dates, so I averaged the two quarters that represented Q2
  • I recognize that the flyer data is limited because it's only from 1 week and doesn't include Walmart or Costco