Loblaw Companies Limited Strategic Plan Presented to Galen Weston Jr. , Executive Chairman of Loblaw Companies Ltd and Professor Imran Saleem, University of Toronto Submitted by Group 4 on March 30, 2010 Table of Contents Loblaw Companies Limited Strategic Plan1 Table of Contents2 Loblaw Companies Limited Summary3 History3 Current Vision3 Short Term & Medium-Longer Term Plan3 Detailed Financials4 Industry and the Competitive Analysis4 SWOT Analysis5 New Vision6 The new Mission7 APPENDIX8 Exhibit 1 – Loblaw Companies History and Market Standing8 Exhibit 2 – Competition8 Exhibit 3- Financial Analysis9

Exhibit 4 – SWOT Analysis10 Loblaw Companies Limited Summary History Loblaw Companies Limited is one of Canada’s largest food distributors and has since its conception, expanded its services from providing general merchandise and grocery products to drugstore and financial services. Loblaw owns various operating banners, such as Superstore and No Frills which equally cater to the low price and the high-value markets. Although Loblaw is known for the quality and value of its food, it is committed to providing Canadians with a one-stop destination for their food and household needs.

Their strategy is demonstrated time and again in the portfolio of store formats across the country: Simplify, Innovate, Grow. When Galen Weston assumed the chair of the company, the company controlled the Loblaw retail chain in Ontario, which was underperforming, and had ownership interests in scattered retail and wholesale companies in Ontario and other provinces. Under his leadership, the retail and wholesale operations were revitalised, store interiors and exteriors were refreshed to highlight products. For instance, the No Frills brand had a distinct yellow packaging which was easy to recognize and cost little to produce.

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Through this, a new corporate identity made every Loblaw product instantly identifiable and set new standards for similar products in North America. Current Vision Loblaw has continuous revised their approach every 3 to 5 years. Whether is it is bringing out a new product line such as No Name and Presidents Choice or revamping their stores to include Joe Fresh original clothing, the constant revising of their corporate vision has allowed them to be part of the market trends and not fall by the way side when new competitors join the industry.

They have loyal customers who believe in their approach and are willing to pay a higher premium for quality foods. Loblaw has been unsuccessful in some markets such as Quebec but they know when to cut their losses and move towards the profitable business. Although in the last business cycle they lost money they will be able to start the next cycle with a fresh vision and continue to be a market leader. The continuous revising of their approach has been successful and as long as they continue to monitor the industry they will continue to succeed.

Short Term & Medium-Longer Term Plan In the short term, Loblaw Companies Limited must keep its promise of having fresher foods as well as more stock on the shelves for consumers to purchase. Many of the “Real Canadian Superstores” are deemed to be harder to navigate by consumers because of the quantity of different merchandise located within the store. Loblaw Companies Limited should focus on simpler, easier to navigate Supercentres that compete with the large and well organized Wal-Mart Superstores that have a completely dedicated space to food and groceries.

The rest of the general merchandise is located on the completely other end of the store in well organized sections and is much easier to navigate. Additionally, Loblaw should also lower the amount of general merchandise that is in their stores and focus on specific sections of merchandise such as their original clothing line (not small electronics and house wares). In the long term, it is evident that Loblaw Companies Limited can improve their ability to supply their stores with on- time deliveries to keep their inventory fresh and sales high.

Loblaw should invest in large warehouses and their own logistics company to ensure on time deliveries. Loblaw should build these extremely large 1,000,000 square foot warehouses that are able to supply up to 150 stores within the region. Detailed Financials According to Exhibit 3, Loblaw Companies Limited raised sales in 2006 with an increase of $1,013 million over the preceding year. This was off set by an increase of $2,125 million in operating expenses year over year, of which $800 million was due to the goodwill impairment for the Provigo Stores in Quebec.

This caused the operating income to decline to $289 million from $1,401 million in 2005 and the company overall to report a loss in 2006 of approximately $ 219 million. This in turn caused its market price to decline at the end of 2006. All of the Financial Ratios show a drastic decline year over year due to this heavy impairment in good will. If you remove the $ 800 million in good will impairment the actual profit would be $581 million and although the Financial Ratios are still lower then 2005 they are much more consistent year over year.

Overall Loblaw Companies is a very strong and consistent player in the Canadian grocery industry which has been hit by the write downs in 2006 but show every sign of rebounding for the 2007 financial year as the cost to close the stores in Quebec have been reflected in the current years reporting. Industry and the Competitive Analysis Grocery business in Canada is less distributed across the country than in the USA. The strongest markets are in Quebec, Ontario, and Alberta – and Loblaw’s currently holds the highest market share in these provinces.

Within the Canadian market, there is a strong competition among other national companies such as Sobeys and Metro. While they are competing among themselves within grocery assortments, Loblaw’s decided to incorporate retail and fresh food. Because of the multicultural market in Canada and an increased consumer yearning for healthy living, it appears that Loblaw’s has the advantage on their local territory over Wal-Mart. High quality clothing lines in Joe Fresh stores is another advantage over Wal-Mart’s low quality bargain clothing lines. With the opening of its Superstores, Loblaw’s has introduced more than food options to their consumers.

They have realized that stepping out of their usual business model requires sustained efficiencies in selling both groceries and general merchandise, if they want to succeed in winning over the Wal-Mart customer. Another competitive threat from is Costco which is offering a wide selection of high quality products at lower costs. This being said, if Loblaw’s Superstores can compete with Costco in establishing a good network of suppliers offering high quality brand-recognized-products with competitive prices, they will be able to avoid losing a substantial portion their current market share to them.

At the moment, Loblaw’s internal supply chain system is not based on the latest technology which results in empty shelves and delayed set-up of in-demand seasonal products. Suffering from the perception that their products are not up-to-date, which is really due to delayed delivery of goods, Loblaw’s is losing some of its customers to the competitors. Consumers are generally not happy when they cannot find advertised goods on the shelves and start looking elsewhere for all of their grocery needs.

It is not enough to invest in marketing without any investment in productivity that achieves positive results. This is an area where the competition has excelled and Loblaw Companies can learn from and use in their strategic planning. SWOT Analysis Loblaw Companies Limited has a great opportunity to remain the strongest leader among the Canadian supermarket chains with some internal improvements. The “No Name” brand has proven that its quality and lower price is attractive to consumers, and their President’s Choice loyalty program is keeping Loblaw Companies ahead of Wal-Mart . Consumers are ooking for great deals and high quality which is something the competition, namely Wal-Mart, is also offering. As in many cases, the opportunities are often also the biggest threats, hence being the leader in supermarket chains is also Loblaw’s biggest challenge. In order to meet the challenge, Loblaw needs to invest in their internal inventory and supply chain systems, and provide the freshest local products available in the market today. One of the weaknesses that Loblaw is facing is having their supplies delivered with delay which has caused empty shelves and unhappy consumers.

Late seasonal items have forced Loblaw to reduce the price in order to quickly sell out-of-date products, which causes a direct loss in their revenue. By investing in an Electronic Data Integration system (EDI) and training store managers on how to use the system to order and track shipments, Loblaw can eliminate any delay in service delivery thereby improving operations and meeting the competition for customer loyalty. This will also offer the Real Canadian Superstores the tools they need to compete with Wal-Mart, mitigate negative responses from consumers, and facilitate employee efficiencies.

Another area of weakness that a new EDI system will mitigate is the threat of expansion from the competition, namely Wal-Mart. Wal-Mart has been developing very fast in the United States and became the country’s largest grocer in a short period of time –they might be going for the same success in Canada. As part of its success Wal-Mart has an established an EDI system which allows them to connect with their suppliers, distribution centers, and retains data about store activities. In order to meet the threat of emerging competition, Loblaw should take the opportunity to purchase and customize its own inventory system.

New logistics tracking technologies for keeping in-demand products on its shelves and the delivery of its goods on time are available and will have the added value of ensuring Loblaw Companies become more consumer focused and cost efficient. This will help Loblaw alleviate the risk of the competition surpassing them in local supply-chain logistics, giving them the advantage in the local territory and opportunity to expand to domestic and local products available in the market today. Another opportunity for Loblaw Companies is to continue building their relationships with the Foodland Ontario program.

Foodland Ontario is a long-established consumer promotion program of the Ministry of Agriculture, Food and Rural Affairs. Their partnership with several grocers and producers has achieved a large penetration of the Ontario market for locally produced fresh agricultural products. Consumers look for the Foodland Ontario symbol when purchasing products and recognize the slogan “Good things grow in Ontario” from their media campaigns. By encouraging stronger ties with this important stakeholder group Loblaw can leverage their network to promote the purchasing of local Ontario products. New Vision: “Act Global… Eat Local”

In order to beat their competition, Loblaw’s first strategy of Simplify, Innovate and Grow needs a more direct focus. One way to build on this strategy is to focus with both Global and Local lenses. Loblaw Companies Limited is the current leader in grocery business in Canada, with brand name and customer loyalty well established. To keep their status as a high quality supermarket chain with satisfied customers, Loblaw should modernize by improving their internal inventory systems and distribution channels. By globalizing their information systems it will make sure that their shelves are full and all the products up to date.

Poor inventory control is one of the biggest weaknesses in the company especially with goods not being delivered on time for the promotional sales. Instead of focusing on new business model and opening of Superstores with lower quality goods, Loblaw’s should focus on their present model to keep the quality and standard high. Secondly, Loblaw should capitalize on the current market trend of organic foods and eco friendly processes. They already have their own brand of organics and they have the ability to sell these specialty lines as they have succeeded with No-Name and President’s Choice in the past.

They can optimize the current produce section with items that have been grown locally and therefore put the emphasis back into the local community. This will take a very organized logistical team but will pay off with the ability to connect with the local customer. New Mission Investing in new technology through implementing a new inventory system to communicate with suppliers and all of the stores will give Loblaw Companies Limited an advantage over their competition, keep their shelves full at all times, keep products up-to date, and will keep customers satisfied. The supply chain will improve and will eliminate some of the unnecessary rocedures which will result in overall reduction in operating costs. This is a corporate-wide initiative and will require the entire functional unit leadership team to participate in the requirement definition for this implementation. The individual stores should be consulted for ideas of improved efficiencies that the system can offer. This will ensure a good logistics system will be implemented and a quick adoption by the users of the system. The second strategic option is to set up farmers markets once a week (alternating days of the week between locations) in Loblaw parking lots.

This will target new and existing customers who are interested in local and fresh produce. It will not only help Loblaw to act on their promise of having fresh produce, it will bring new customers into the stores to complete their grocery needs. Through their network with Foodland Ontario, the Executive team will offer a list of farmers to the individual store managers. Each business unit will need to negotiate directly with the farmers for fresh foods and may need to involve managers at the store level.

With the new EDI system in place, the store manager can amend his orders according to the amount of product brought in directly from the local farmers. By engaging more fully with the relationships already in place, Loblaw can adhere to the Foodland Ontario policy of buying local, empower it’s store owners to build local relationships and promote their business, and it will also help strengthen Loblaw’s the relationships with their customers. APPENDIX Exhibit 1 – Loblaw Companies History and Market Standing Exhibit 2 – Mapping of Competition Exhibit 3- Financial Analysis Exhibit 4 – SWOT Analysis Strengths Leader among the Canadian supermarkets ?Largest food distributor in Canada ?Large assortment and high quality fresh food ?Long time established and known business ?High quality retailer-branded product “No Name” brand ? President’s Choice loyalty program ?The real Canadian superstores in Ontario-low cost one stop-shopping place ? System on penalties for suppliers with delay ?Joe Fresh line-high quality, lower priceWeaknesses ?Distribution system low ?Supply chain reorganization was mishandled ?Reduced number of promotions ?Poor control of inventory-old products on the shelves with new one already on the market ?

Labor costs extra –goods not delivered on time ?Seasonal merchandise not sold on time due to delayed delivery ? Delayed delivery of goods ?Poor communication with suppliers about location of shipment ? The Real Canadian Super Store was difficult to navigate because of its size ? Customers unaware about discounts and low costs strategies ? Complaints of low quality of goods and empty shelves in the store ? Quality of non-food products in superstores was low for Loblaw’s standards Opportunities ?To become consumer focused, cost effective and agile ?To become low-cost high quality leader Improvement in supply chain ?Use new technology for better inventory system in the stores ? Build Stakeholder RelationshipThreats ?Metro, Sobeys, Costco ?Wal-Mart and Wal-Mart Superstores ?Wal-Mart-largest grocery retailer in the world ?Wal-Mart’s strong internal inventory system and distribution system ? More competitive and dominated companies strong on national level ? Lost customers due to delayed and poor delivery of goods in the stores ? Delay in getting new & fresh products while they are already with competition *Items in bold reflect the areas of focus in this strategic plan

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