Loblaw Companies Limited: Preparing for Wal-Mart Supercenters

Case 16 1. The grocery industry is a commoditized industry, which makes it difficult for grocers to sustain through differentiation. Buyer power is high and thus, cost leadership and operational efficiencies are critical. There is fierce competition amongst various grocery stores, with the main players such as Loblaw and A&P holding multi-banner stores in various market segments. Traditional grocery stores also lose some of their market share to drug stores, convenience stores and other retailers who have entered the industry. Threat of substitutes from fast-food and take- away outlets is not as prevalent, since many grocery stores have started stocking ready-to-eat meals and have deli services available for consumers. Competitive pressures are increasing in the industry with the potential entry of Wal-Mart and new delivery methods such as the internet. 2. grocery store industry witnessed a lot of changes. Competitive pressures in the industry are increasing and several new competitors including wal-mart are entering the market. New methods of delivery such as the interned are making it difficult and challenging for traditional based stores to comply. Customer preferences are diversifying and different demands are increasing. In addition to the price war that strike the markets. The maturity of the industry, characterized by flat demand combined with the growth aspiration of the dominant suppliers makes the industry a competitive battleground. Competitors work toward driving costs down while responding to swiftly changing consumer tastes. Grocery managers therefore are challenged to provide the marketing mix of tomorrow, emphasizing speed, flexibility, and early identification of trends directed at segmented and rapidly evolving markets. The mass consumer market has been replaced by hundreds of highly diversified mini-markets for which grocery companies have to design custom made solutions. 3. Key Success Factors of the grocery industry include the following: Low cost operations; leading to lower prices Convenient locations and large stores Wide product ranges; good quality Value added services; customer loyalty programs Cutting-Edge technology, both front-end and back-end Looking at the above factors, there are many opportunities for Canadian grocers to improve on their services such as vertical integration as supplier/distributor, innovative technologies like RFID, and global expansion Loblaw's unique tangible resource is that they own 63% of their corporate stores real estate properties. As mentioned above, the grocery industry is heavily commoditized and competitive. The Canadian market leader, Loblaw, serves a broad target market and integrates a low cost strategy with product and process differentiation. Through their multi-banner approach, they leverage their core competencies across multiple businesses. The biggest winner for the company had been the multi format approach. The company also holds about 60% of the real estate where they operate giving the benefit to change. The company refurnish the stores every 5 years when the industry norms are 7 years. 4. SWOT ANALYSIS: Strengths: Strong Market Share Broad Product Portfolio Diversified Store Format Low prices with good quality items at all franchises Great customer service/customers have a say in the company Noticeably friendly workers Constantly looking for areas of improvement Array of services Canadian unlike foreign competitors like wallmart Weaknesses: Low Online Operations Limited Geographical Presence Opportunities: Rise in Demand for Private Labels Strategic Plans Rising Demand for Organic Products Opening new stores helps them become more competitive The unfortunate economy will create a new wave of customers looking for cheaper prices Threats: Expiry Of Agreement With Labor Union Highly Competitive Market Wal-Mart Business Partnerships Higher prices on certain items makes them less competitive in those areas (electronics and household furniture). By the above S. W. O. T analysis, one can see that Loblaw’s KSF’s are on track and that they are headed in the right direction to bring them back on top. There is of course still work for Loblaw to do with their pricing, however that will come with time because when the company is doing better, they will be able to lower their prices even more. They are putting up a good fight though! Loblaws prices for certain items were only a mere 10-15 cents higher than that of Wal-Mart which demonstrates that they are climbing the ranks and will eventually pose as a threat to WalMart. Being pure Canadian company is also a core competency because many people enjoy supporting their country even if it means spending an extra 10-15 cents. These key factors (low prices, better quality products, great customer service, and being Canadian) will help Loblaw rise to the top again. 5. Lederer's plan to combat the threat of  Wal-Mart  Supercentre grocery stores turned bad on the company Consolidating its distribution centres, which supposedly made the supply chain more efficient, resulted in the departure of many of the chain's general merchandise buyers who were unwilling to move. There were numerous delays and coordination problems as suppliers had trouble shipping their goods to stores on time, and Loblaws was forced to mark it down in order to liquidate excess inventory. Expanding its inventory to general merchandise, supposedly to make a one-stop location like Wal-Mart Supercentres, was considered by many customers to be below the standards of Loblaws. Lederer stopped investing in its convential supermarkets and focused on building its major discount format, the real Canadian superstores. He spent 25 million dollars to motivate old employees to retire early as he turned traditional old stores into superstores. . This is a significant evaluation, because Loblaw is Canada’s largest food distributor, as well as one of the largest private sector employers. Loblaw operates under names such as The Real Canadian Superstore, Fertinos, Provigo, SuperValu, Zehrs, Atlantic Superstore, Loblaws, and Your Independent Grocer. Along with food and household products , Loblaw provides consumers with other services, such as banking, gas stations, pharmacies, photo developing, dry cleaning, and fitness centers. A qualitative and quantitative analysis of Loblaw was conducted through secondary research, using both internal and external sources. This report focuses on the goods distribution and marketing aspects of Loblaw, by exploring its history, primary products, social responsibilities, and financial position. Ratios of the past and present will be taken into consideration when researching and making recommendations. History Loblaw Companies Limited was incorporated in 1956 and it now employs over 122 000 part-time and full-time employees throughout its 990 branches. As a subsidiary of George Weston Limited, it has supplied the Canadian market with innovative products and services for more than 45 years. The superstore idea was first introduced to Western Canada in 1979. Loblaw operates in a highly competitive industry, challenged by many other supermarkets, such as Safeway. Organizational Structure The organizational structure of Loblaw Companies Limited is classified according to the functions of each department. Areas of specialization include: auditing, governance and compensation, pensions, environment, health and safety, and executive. Committee and team authority govern this tall, hierarchical organization, where individuals within the several layers report back to their superiors in the chain of command. Ultimately each senior vice-president reports to the executive vice-president, who in turn reports to the president of the company, who is responsible to the Board of Directors. The Board of Directors itself is divided into five committees, which represent each area of specialization. Social Responsibility Loblaw demonstrates its social responsibilities in the following areas: Environment: Loblaw has various company policies concerning the environment, one of which demands that various operating sectors develop and implement waste reduction. Reports are given to the environmental committee operated by a sect of board of directors who are not directly employed by Loblaw. Attempting to project an environmentally friendly image, Loblaw announced in 2002, that all of their garden centers would be pesticide free by 2003. Their waste reduction initiative has seen positive results, as was the case in 1999, when it reduced solid waste by 75%, organic waste by 60% and water waste by 38%. Use of underground tanks has been decommissioned; in addition PCB’s and asbestos have been removed from company operatives. Employees: The philosophy that a company’s success is directly affected by the attitude of the employees, is put into action when Loblaw concentrates on coordinating positive relationships with their employees. Employee benefits include life or health insurance, dental insurance, and a pension plan. A stock option plan and an Employee Share Ownership Plan (ESOP), which are administered through a trust, are also available. This allows employees to make five percent deductions from their regular earnings; Loblaw then contributes 15% of each employee’s contributions to the ESOP plan. Recruiting, hiring, and training are all done on a store-by-store basis. Loblaw maintains health and safety programs in its stores to address health and workplace safety. This system is also subject to compliance audits. Community: Charities such as Canadian Breast Cancer Foundation, Canadian Cancer Society, President Choice Children’s Charity, Easter Seals, the Canadian Merit Scholarship and many more benefit from Loblaw’s donations. Loblaw has purchased Maple Leaf Gardens, further developing its roots in the city of Toronto. Customers: Loblaw strives to have a good relationship with ts consumers through feedback, quality customer and product services. Programs such as the President’s Choice Financial MasterCard allow consumers to collect points, which are redeemable for goods within the store. Loblaw also attempts to get feedback from consumers through focus groups and surveys. However, Loblaw fails in the area of consumer responsibility by not allowing supplie rs to indicate whether or not their products are genetically engineered. The company goes as far as to demand that companies selling genetically engineered goods avoid proclaiming so on their labels. Investors: Loblaw is working towards being socially responsible to their investors by keeping them informed by releasing online annual reports and mailing them out. The company provides sustainable returns through dividends by reinvesting cash flow into the firm’s real estate and land. 7. loblaws was the largest supermarket chains in Canada. they opened a series of the real Canadian superstores in Ontario, where they expected wallmart to open their first food superstores. These were built as low-cost, one stop shopping destinations. The real Canadian superstores were as the size of two football fields and sold a combination of groceries and non-food items. Lederer consolidated the the companies distribution centers from 32 to 26 facilities, in order to increase the efficiency of the supply systems. He closed old warehouses and opened new ones in Brampton Ontario. Real Canadian superstore were located along walmart supercenters as if facing at war. Geographically wise they were allocated at same areas and when it comes to goods and commodities, the both handled non food items along with their usual groceries. The war did begin. 8. Galen Weston Jr. as supposed to rescue the company by fixing the broken delivery system. He started by managing a pilot online grocery business in Ontario. Galen along with his team outlined a new business plan. He studied the problems and found out that they have a big delivery problem and that they are still over-priced. He aimed to increase sales and earnings by cutting prices, offer ing more products, and improving customer service. Galen started working on investors and opening up in idols such as the maple leaf stadium in downtown which he turned into a grocery store as to gain people due to their passion to the hockey team which was a symbol at the ountry. Moreover he succeeded in becoming number one again. 9. Recommendations for Loblaw: A private label: a store like Loblaw’s needs a particular way it can standout the competition. They could approach the strategy of having private labels in store. Cut down on general merchandise: they should reduce low quality goods and focus on selling people groceries with good quality plus they should concentrate on groceries rather than electronics because too much diversity infects being the best at a certain field. Make the store attractive to the customers eyes: try to beat wal-mart by obtaining a store that is clean, decorated, high ceilings, no open boxes, attractive lighting and displays. Make the stores easy to roam and let commodities that are of the same interest be on a route that customers don’t pass by unwanted goods. Let people say this is the store I want to buy from. Supply chain management: its clear that the supply chains logistics used by Loblaw’s should be changed. Empty shelves phenomena should become extinct because it makes good stores look cheap and unreliable. Increase marketing: marketing and advertisement should be extreme and excessive especially when change happens, prices differ, and news are there. Promotions should reach customers well enough to gain or even regain their loyalty. People should know that the company recognized their mistakes and problems and solved them out. Downsize: close unprofitable stores, this will reduce payroll and increase the funding to solve damaged issues. Off coarse this is the last measure companies look at but its helpful at the long run.