2020 Annual Report $2.8 billion REVENUE FROM ONLINE SOURCES, AS WE SCALED E-COMMERCE, PROVIDING CUSTOMERS MORE FLEXIBILITY AND CHOICE THAN EVER BEFORE 25,026 TEMPORARY WORKERS HIRED AT THE PEAK OF THE PANDEMIC TO SUPPORT OUR STORES, COLLEAGUES AND CUSTOMERS 7,250 TEMPORARY WORKERS OFFERED PERMANENT EMPLOYMENT ONCE THE FIRST WAVE SUBSIDED 4,000 NUMBER OF PRODUCTS AVAILABLE AT SHOPPERSDRUGMART.CA, INCLUDING BEST SELLERS IN ELECTRONICS, BABY AND CHILD, HOME GOODS, OVER-THE-COUNTER AND EVERYDAY ESSENTIALS $445 million 2020 INVESTMENTS IN COVID- RELATED ADJUSTMENTS AND SAFETY MEASURES 2 million + FLU SHOTS ADMINISTERED IN OUR PHARMACIES IN 2020 285,000 NUMBER OF HOURS OUR STORES OPENED EXCLUSIVELY FOR SENIORS AND HEALTHCARE WORKERS A passion for customers fully ignited As a nation, and as an organization, 2020 was among the most stressful and anxious years in our history. Throughout this uncertainty, you – our colleagues – were there. As the country learned to deal with change, you brought comfort. As your friends and neighbours sought to meet their most fundamental of needs – for good food and good health – you opened your stores and your hearts to them. You truly helped Canadians Live Life Well®, and you can hold your heads high knowing that you helped a nation move forward. From the bottom of our hearts: thank you. Table of Contents 2 Our Stores, Our Colleagues, Our Strategy 4 Financial Highlights 5 Chairman’s Message 8 Our Divisions 10 Strategic Enablers 12 Corporate Social Responsibility 14 Corporate Governance Practices 16 Board of Directors 16 Leadership 17 Financial Review 2020 ANNUAL REPORT 1 LOBLAW COMPANIES LIMITED Our Stores Our Colleagues Our Strategy From the ground up, we exist to help Canadians Live Life Well.® This commitment factors into how we operate our stores and pharmacies day-to-day, and how we deliver on our long-term organizational strategy – known internally as the Strategic Compass. At the heart of our Strategic Compass is a passion for customers and the constant pursuit of true customer-centricity. This passion comes to life through our five operating divisions – Discount, Market, Shoppers Drug Mart®, PC Financial® and Joe Fresh® – and guides our three strategic priorities of Everyday Digital Retail, Connected Healthcare Network and Payments & Rewards. Delivering on these priorities requires outstanding talent and stable financial results, achieved through data-driven insights, process and efficiency excellence, and a commitment to being the best in food, health and beauty. All of our decisions are guided by a shared set of CORE values and culture principles, and a commitment to social responsibility and compliance. 62% Everyday Digital Retail Process and Efficiency Excellence NUMBER OF PC FINANCIAL® CUSTOMERS USING THE DIGITAL We are an omni-channel retailer. We take Our ambitious strategy calls for investment PLATFORM OR MOBILE APP great pride in operating many of the in areas that matter most to our IN 2020 country’s top store banners while providing customers, and doing so requires the Canadians with a best-in-class digital adoption of more efficient processes and experience that they’ve come to expect. a continuous improvement mindset. Payments & Rewards Data-Driven Insights Driven by the data from millions of Our rich data-set offers us unique insights weekly customer interactions, we into the needs and expectations of our deliver personalized offers, financial customers, and through continuous services and rewards to our customers. improvement, our focus is on seeing, knowing and acting on their behalf better Connected Healthcare Network than anyone else. We offer Canadians a seamless omni- channel health experience and strive to be Best in Food, Health and Beauty the front door to healthcare in the country, We offer a variety of grocery options to meet both in person through our network of more all tastes and budgets, operate the country’s than 1,800 pharmacies, or online through industry-leading pharmacy network, provide PC Health. access to over 5,000 health and wellness professionals, and remain a top beauty destination for Canadians. 2 2020 ANNUAL REPORT LOBLAW COMPANIES LIMITED PC Express™ Steps Up In early December, a devastating fire destroyed the only grocery store in Introducing the the village of Apsley, Ontario, in the township of North Kawartha. The PC Health App nearest grocery store is about 50 kilometres away, leaving the village The PC Health app provides without a reliable source of food. Canadians with a wide range PC Express™ stepped-up, mobilizing of core features to help them to deliver 80 grocery orders per day navigate their health journey – from the nearest Real Canadian including real-time access to Superstore in Peterborough. For more, healthcare practitioners, health visit loblaw.ca. and wellness programs, a curated selection of products and services, and more. The goal is simple: empower Canadians to better manage “ We wanted to make it easy their health and wellbeing, all for them, especially since while making it more accessible, many in the community more convenient, and more have never shopped for personalized. For more, visit groceries online. A small loblaw.ca. group of developers, designers and project managers worked on “ Shoppers Drug Mart® strives to be the front door building a custom Apsley for healthcare, bringing together thousands of page to simplify the trusted healthcare professionals, with a strong experience for them.” network of pharmacy locations and support for LAUREN STEINBERG, SENIOR Canadians online through the PC Health app.” VICE PRESIDENT, LOBLAW DIGITAL JEFF LEGER, PRESIDENT, SHOPPERS DRUG MART 2020 ANNUAL REPORT 3 LOBLAW COMPANIES LIMITED Financial Highlights + 8.6% + 4.9% + 4.5% + 5.3% FOOD RETAIL DRUG RETAIL FRONT OF STORE PHARMACY SAME STORE SALES SAME STORE SALES + 9.7% 29.5% + 2.6% 9.6% REVENUE2 ADJUSTED RETAIL CONSOLIDATED CONSOLIDATED ADJUSTED ($ millions) SEGMENT GROSS PROFIT ADJUSTED EBITDA1,2 EBITDA MARGIN1,2 MARGIN1,2 ($ millions) 2018 2019 2020 2018 2019 2020 2018 2019 2020 2018 2019 2020 46,693 48,037 52,714 29.4% 29.7% 29.5% 3,528 4,912 5,041 7.6% 10.2% 9.6% + 3.4% + 3.2% ADJUSTED DILUTED NET DIVIDEND DECLARED EARNINGS PER COMMON PER COMMON SHARE SHARE1,2 ($) ($) 1 See the Non-GAAP Financial Measures section of the 2020 Annual Report – Financial Review 2 Including the impact of the 53rd week 2018 2019 2020 2018 2019 2020 4.06 4.12 4.26 1.155 1.24 1.28 4 2020 ANNUAL REPORT LOBLAW COMPANIES LIMITED Chairman’s Message It was a year like no other, with many challenging and shifting dynamics. Our businesses, our colleagues, and our communities were all impacted. But, we adjusted. Our focus on safety, thoughtful investments, and our purpose – helping Canadians Live Life Well® – allowed us to emerge with a stronger core business and the strategic momentum that will create value over the long term. Fellow shareholders, These investments were the right thing to do, and as a result, our colleague engagement 2020 was a remarkable year that tested the and customer satisfaction scores have never resilience of our colleagues, the capacity been higher. of our stores and supply chain, and our conviction in our strategy. In the end, all Now, although the pandemic continues, held strong as we pursued our purpose we are operating with greater confidence. to help Canadians Live Life Well® amid the We finished the year having held on to most extraordinary of circumstances. market share gains in conventional grocery, drug and beauty, and saw improving trends Managing Through Uncertainty in discount. Stable Winning has been at the centre of our strategic framework since well before For all of 2020, we achieved same store 2020, but COVID-19 shook that concept sales growth of +4.9% in drug retail and to its core with volumes swinging from one +8.6% in food retail, with revenue of extreme to another across categories and $52.7 billion, growing +9.7%. Consolidated formats as the impact of the pandemic adjusted EBITDA was $5.0 billion, or +2.6%. evolved at a dizzying pace. From initial Adjusted diluted net earnings per share stockpiling, to the ebb and flow of lock- were $4.26 or +3.4%. We generated over down restrictions, our teams were called $2.247M in free cash flow, and continued to Galen G. Weston Executive Chairman upon to adapt and respond to changing return capital to shareholders by increasing circumstances on a nearly hourly basis. our dividend 3.2% and repurchasing 13.3 million shares under a common share Early on, we made a series of decisions. repurchase program. We chose to focus on the health and safety of our customers and colleagues above all else, spending an average of $76 million per quarter in the process. We chose to keep prices low for Canadians when they needed it most. And, where it made sense, we accelerated our strategic initiatives. 2020 ANNUAL REPORT 5 LOBLAW COMPANIES LIMITED Chairman’s Message As we look toward the future, we are well positioned. Our core business is fundamentally healthy, our strategy is working, our investments are starting to bear fruit, and we’re gaining momentum. Ready for What’s Next Our Connected Healthcare Network As we look towards the future, we are well strategy also gained traction in 2020. positioned. Our core business is fundamen- More than ever, Canadians are turning to tally healthy, our strategy is working, our new ways of accessing healthcare, and investments are starting to bear fruit, and we’re shifting their mindset around our we’re gaining momentum. enterprise’s total health offering. We want Canadians to rely on us to deliver a seam- For example, our Everyday Digital Retail less omni-channel health experience and to strategy saw rapid acceleration in 2020.