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Loblaw case

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Loblaw is committed to providing Canadians with a wide, growing and successful range of products and services to meet the everyday household demands of Canadian consumers. Loblaw is known for the ...

Loblaw is committed to providing Canadians with a wide, growing and successful range of products and services to meet the everyday household demands of Canadian consumers. Loblaw is known for the quality, innovation and value of its food offering. It offers Canada’s strongest control (private) label program, including the unique President’s Choice, no name and Joe Fresh Style brands. In addition, the Company makes available to consumers President’s Choice Financial services and offers the PC points loyalty program..
Competing against Wal-Mart is a challenge that no company want to face.
Loblaw offers Canada’s strongest private label program, including the unique President’s Choice, no name and Joe Fresh Style brands. In addition, the Company makes available to consumers President’s Choice Financial services and offers the PC points loyalty program.

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  • Loblaw Companies Limited, a subsidiary of George Weston Limited, is Canada’s largest food distributor and a leading provider of drugstore, general merchandise and financial products and services. Over 13 million of Canadians shop with Loblaw every week.
  • The first part of this presentation includes an overview of Loblaw Companies. We will outlines its milestones and identify its corporate strategy. During the second part, we will analyze the Loblaw situation at the end of 2006 and introduce its main competitor: Wal-Mart. We will end the presentation with a summary of February 2007: 100-day review that will help us to open a discussion.
  • To reach their goal, they expect to become a centralized, marketing-led organization with an un relenting focus on customers, products and stores. They plan to continue leveraging their scale and developing their capacity for consistent execution to drive profitable growth.
  • Thompson, Strickland, & Gamble (2009) stated George Weston Ltd was a company that specialized in bakery goods. George Weston Ltd gained majority interest in Chicago based food distributor named Loblaws Groceterias and incorporated the company as Loblaw Companies Limited. A large number of grocery manufactures, retailers and wholesaler across Canada and the Midwestern US were acquired. 2005 Loblaws Corporate Stores by Banner Banner Number of stores Maxi 97 Loblaws 95 The Real Canadian Superstore 88 Provigo 81 Extra Foods 78 Cash & Carry & Presto 57 Zehrs Markets 52 Atlantic Superstore 51 The Real Canadian Wholesale Club 37 Maxi & Cie 15 Dominion 14 Other corporate banners 5
  • Loblaw’s most successful strategy has been its private labels. Loblaw’s marketing team was credited by the invention of private brands. It’s President Choice is leader in the grocery market. Loblaw has innovated in the clothing category with is named Joe Fresh Style, which is a line of designer fashions that has been very well accepted by its customers. However, the effort to consolidation of distribution centers had backfired due to lack of poor planning. Loblaw is still challenging by problems in its distribution systems.
  • Thompson, Strickland, & Gamble (2009) stated: The Canadian market is too sophisticated and too multicultural with well-developed discount grocery sector with high standards for produce, meat, deli, bakery and seafood. Expectations of grocery stores in Canada are higher compared to the expectation in United States. “Fresh” are the largest buzzword in Canada grocery retailer. - Market Share in food sales in Canada in 2005 Retailer Market Share 1. CO-OP 3.4% 2. Costco 5.2 3. Loblaw 34.9 4. Metro 13.1 5. Overwaitea 3.5 6. Safeway 7.1 7. Sobeys 16.0 8. Wal-mart 2.6 9. Others 14.3
  • New stores are increasing the average size of supermarkets in Canada, which is about 26,000 square feet. Loblaw will lead the push with projected superstores in the 140,000-square-foot range, according to the Canadian Council of Grocery Distributors. Canada has been not as attractive as a first look, mainly because the U.S. markets have been more attractive and easier to get into, with bigger volumes. However, the global dynamic is changing and now that the US is becoming a little bit on the saturated side, Canada is going to warrant a second look. In response to Wal-Mart’s anticipated diversification into the food category and changes occurring at Loblaw, competitors are focusing on food.
  • Loblaw’s brand is highly recognized among its competitors in the industry and among it suppliers.
  • 21 banners means higher marketing expenses and a challenge to build a unified corporate image. No all its customers known that they are buying in a “Loblaw” store. Many of the stores banners do not include the company name “Loblaw,” for instance, Fortinos, Freshmart, Independent supermarket, Extrafoods, Nofrills, Cash and Carry, etc.
  • Wal-Mart expertise in managing inventories and distribution centers and suppliers, lower labor costs and refine logistic systems is one of the most significant threats that Loblaw faces.
  • The company needs to strengthen immediately its distribution systems and its managerial model: building strong buyer-supplier relationship and improving technology and logistics. Loblaw needs to refocus on “fresh food” Loblaw needs to ensure that its private labels are always available and that general merchandise is restocked timely. Improve its marketing campaign to educate customers on its new deep discount pricing strategy Loblaw need to redesign the layout of its stores, in order to make them easier to navigate for customers.
  • Thompson, Strickland, & Gamble (2009) described that: A typical distribution center was approximately 1 million square feet (the size of 23 American football fields) The accuracy of shipments was more than 99 percent. Stores are located no more than a one-day’s drive from its distribution center. Analysts predicted that, as a result of the Wal-Mart’s pricing strategy, some of Loblaw stores can lose between 5 to 10 percent weekly sales.
  • Goals to achieve in a timeframe of three to five years: Increase sales by 5 percent and increase earnings by 10 percent Cutting prices, offering more products and improving customer service.
  • Loblaw’s executive team is working through different options: Clear excess inventory Refresh stale inventory Negotiation of unionized multi-year contract Go back to the basics - reallocate stores for more food Reduce store size Narrow assortment of general merchandise Lower prices

Loblaw case Loblaw case Presentation Transcript

  • “Loblaw Companies Limited: Preparing for Wal-Mart Supercenter”Kipenzi Herron and Emilsen HolguinBus 511 Business Strategy and PolicyDr. Adolfo GorriaranJanuary 2010
  • Agenda  Loblaw Mission and Vision Statements  Loblaw History  Corporate Strategy  Industry Overview  SWOT analysis  Wal-Mart Market Entry  February 2007: 100-day review  Summary  Discussion Questions  References 2
  • Loblaw Mission and Vision  Loblaw’s mission is to be Canada’s best food, health and home retailer by exceeding customer expectations through innovative products at great prices.  Loblaw is committed to a strategy developed under three core themes: Simplify, Innovate and Grow.2006 Annual Report, http://www.loblaw.com/en/lcl_ar06e/downloads/lcl_ar2006_e 3
  • Loblaw HistoryLoblaw was acquired by George Weston Ltd. Loblaw was built as a food empire through the purchase of grocery manufacturers, retailers and wholesalers Credited with inventing premium private brands in North America In 2005, Loblaws was the largest supermarket chain in Canada, with an estimated market share of 34.9% In 2008, Loblaw has 609 corporate and 427 franchised stores in every province and territory in Canada (21 banners). Loblaw’s President’s Choice and name control brands are the #1 consumer packaged good brands by sales in Canada. 2006 Annual Report, http://www.loblaw.com/en/lcl_ar06e/downloads/lcl_ar2006_e 4
  • Corporate Strategy  Creation of private labels  Consolidated of distribution centers  Closure of unprofitable stores  Maximized the use of Loblaw’s fleet  Uniform pricing strategy  Standardized store design  Renegotiated union contracts  Introduction of general offerings2006 Annual Report, http://www.loblaw.com/en/lcl_ar06e/downloads/lcl_ar2006_e 5
  • Industry Overview Canadian supermarket industry was valued at $73 billion in 2006. The grocery business was less fragmented, more competitive, multicultural and dominated by national companies. Canada has a well-developed discount grocery sector with very high standards. 2006 Annual Report, http://www.loblaw.com/en/lcl_ar06e/downloads/lcl_ar2006_e 6
  • Industry Overview (continue) The Province of Ontario is a key market in Canada and the biggest market for Loblaw. Ontario’s sales declined 4.3% in 2006. Although sales in 2006 grew 2.49%, the growth was slower than the traditional year-to-year increase of around 4.8%. New stores are increasing the average size of supermarkets in Canada. National and regional chains are getting a wider range of store innovations and an increased spotlight on private labels. 2006 Annual Report, http://www.loblaw.com/en/lcl_ar06e/downloads/lcl_ar2006_e 7
  • SWOT: Loblaw’s Strengths Strong brand name Position of market share – sales number continue growing 7000 Private-label products (No Name and President’s choice) President’s Organic product President’s Choice Bank and its loyalty program Large amount of fixed assets versus low amount of debt Economy of scale and large knowledge and experience in Canadian market Wide geographic coverage (all Canadian provinces) Social responsibility initiatives, close to the community. 8
  • SWOT: Loblaw’s Weaknesses Operating margin dropped to 1% in 2006. Return on average total assess of only 2.30% in 2006. Stores are underperforming Complicated corporate structure and weak management Plagued with problems in its distribution systems: broken buyer- supplier relationships, delayed delivering goods, out of stocks Loblaw is not doing fresh food as well as the others are right now Customers accustomed to prices driven by regular sale promotion Customers find difficult to navigate the superstores Lack of experience managing general merchandise inventory 21 banners 9
  • SWOT: Loblaw’s Opportunities New management team and new business plan Commitment to strategy: Simplify, Innovate, Grow Growing its discount segment, becoming the low-price leader Openings to exploit emerging new technologies Proven product innovation capabilities Large on financial resources to grow the business and pursue promising initiatives Four-year contract with unions and elimination of 20% of its administrative workforce Lack of customer awareness about general merchandise deep discount pricing strategy Joe Fresh Style line of clothing 10
  • SWOT: Loblaw’s Threats Goodwill is continuously dropped in value Market/book ratio has been decreasing since 2002 Intense competition Major Union problems Grocery sales are growing slower than others year’s average Canadian market is attracting foreign investors Wal-Mart experience in global market has continually pushed its general merchandise dominance forward while developing its food business. 11
  • SWOT: Conclusions Although the Loblaw faced significant hurdles, the company has an attractive set of strength and resources to restore its profitability and growth. We have identified as alarming weak, its problems with distribution systems and tolerated poor management. A retailed store’s distribution system and management are key success factors. The major threat is that competitors are growing stronger while Loblaw’s consumer satisfaction is decreasing due to the company poor performance. Loblaw’s best opportunity is to capitalize its experience on food market. Loblaw’s commitments to simplify, innovate, and grow under the application of a new business plan is the best opportunity that the company has to be a front-runner again.
  • Wal-Mart market entry Wal-Mart poses a serious threat to other grocers  Economies of scale and scope  Everyday low pricing  Supplier influence  State-of –art distribution system Wal-Mart built a super-centers and rapid expansion forthcoming.  In 2007 groceries accounted for 31% of total sales 13
  • February 2007: 100-day review“We are not delivering the right value for money and we are not getting the credit with the customer for investments that we do make,” said chairman Galen Weston Jr.Proposed actions by executing and analysts: Clear out excess inventory and improve stocking Strong offering of private labels, de-emphasize national brands and eliminate redundant sizes Reduce space allocated to general merchandise. Devote more are to food or reduce the size of stores Lower prices for selected items to retain its customers Improved differentiation between the smaller conventional Loblaw supermarkets and the larger discount outlets Reconstruction of the famous Maple leaf Gardens in downtown Toronto 14
  • Summary Loblaw has begun to reorganize its business strategy however it is evident that change is imminent. 15
  • Discussion Questions What are Loblaw’s challenges? What issues should Loblaw’s executives be most concerned about? Why? What specific actions should Loblaw take to improve its competitiveness against Wal-Mart? 16
  • References• Canadian Council of Grocery Distributors (CCGD) http://www.ccgd.ca/home/en/index.html• Loblaw Companies Limited, http://www.loblaw.com/ • 2006 Loblaw Annual Report, http://www.loblaw.com/en/lcl_ar06e/downloads/lcl_ar2006_eng.pdf• Thompson, A. A. Jr., Strickland, A. J. III, & Gamble, J. E. (2009). Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, Sixteenth Edition. New York, N.Y.: McGraw-Hill/Irwin 17