Loblaws Inc

Executive Summary

Loblaw Companies Limited must develop a corporate strategy in response to Wal-Mart's upcoming expansion in the Canadian market through new Sam's Club locations and possible Supercenters. Loblaw's current success as Canada's leading grocery retailer can be attributed to the popularity of its private label brands, its streamlined operations, and large-scale purchasing efficiencies. Wal-Mart poses a significant threat to this model through its extreme price competitiveness achieved through the use of advanced supply-chain management technology and effective relationships with suppliers. Based on the company's past record of immediate success in new markets, Wal-Mart's decision to open more Sam's Club stores in Canada requires an immediate response from Loblaw's.

Several possible strategies should be investigated and evaluated with the objective of maintaining market share, short-term profitability, quality standards, and long term growth. In response to Wal-Mart's expansion, Loblaw's has the option to:

a) Maintain its future course with its multiple store brands and private labels

b) Launch a new loyalty program and rebrand retail outlets under the Loblaw's name (some would be designated as Loblaw's + Superstores)

c) Place emphasis on expanding the Real Canadian Superstore outlet chain to compete with Walmart Superstores

Analysis indicates that the creation of one common Loblaw's brand would be most beneficial in realizing the company's goals in both the short and long term. A new loyalty program would further solidify Canadians' support of the Loblaw's brand and attract new customers at the same time. This strategy will encourage higher spending per customer visit while maintaining the company's current position as a price leader and retailer of quality brands.

While addressing the threat of Wal-Mart's expansion, this strategy is deliberate in creating a separate niche for Loblaw's in the market which is built upon the company's existing core competencies.

 

Issue Statement

In order to build on their existing success, Loblaw's must address the changing landscape of the Canadian grocery market; most notably, the arrival of another major player in Wal-Mart. Currently, Loblaw's is the leader in the Canadian grocery market with market share in excess of its four closest competitors combined. The company has relied on the same strategic approach for quite a long time. This approach focuses on driving down costs through size and operational efficiencies as well as differentiating its products and stores. However, the arrival of Wal-Mart means that this time-tested strategy will no longer be relevant. While Wal-Mart's exact plans for expansion are still unclear, it has been speculated that the company could have as many as 10-20 Sam's Club stores in Canada by the year's end. This will prove to be a direct threat to Loblaw's' existing market strengths. For one, Wal-Mart has long established itself as a cost leader. While supermarkets such as Loblaw's use size and scale to achieve cost leadership, Wal-Mart is the largest retailer in the world, has an extremely efficient supply chain and is using technology to cut costs further.

The impact of this new market threats to Loblaw's' operations will be profound. Wal-Mart has quickly dominated most markets outside of the United States within a few years of entry. While analysts suggest that the Canadian grocery market may have more depth, the threat is still imminent. One of the biggest challenges to Loblaw's will undoubtedly be the need to depart from a strategy that has proved successful for such a long period of time. Loblaw's must reevaluate their core competencies, identify opportunities and threats to their business and devise a strategic plan to address the impending threat of Wal-Mart's entry into the market. Such a strategic plan will affect many parts of the business including, but not limited to marketing, finance and operations.

 

Decision Criteria and Data Analysis

In order to address this problem, a concise set of corporate goals needs be established immediately to evaluate each alternative. Loblaw's operating strategy has remained consistent and has contributed to the development of several corporate strengths and advantaged over its competition (Exhibit 1). Its company specific goals are to drive down costs through scale efficiencies, and to differentiate its stores and brands. These initiatives will be the foundation for the first two decision criteria: maintaining profitability in the short term, and to maintain market share through market penetration strategies (Exhibit 2). Short term profitability is important, especially in cash sales to keep current ratio above 1.0 and to provide a basis for further growth in Loblaw's selected target market. Maintaining market share is a crucial decision criterion in the face of competitive threats in a changing market environment. Due to the threat of Wal-Mart's expansion at such a rapid pace, the chosen alternative must be time sensitive and preempt any further moves made by the competition; in turn, the short term aspects of the chosen alternative must not be too complex or time consuming. With any changes being implemented, it is imperative to Loblaw's brand image that quality standards are not sacrificed, as these perceptions are very hard to build back up if broken down. In an industry where price inflation is very low, an active alternative must establish a basis for long term growth in existing and new markets. This may require a change in strategy with respect to target consumers by developing new goals and new ways to fulfill them. In summation, the key decision criteria for Loblaw Companies Ltd. are as follows (Exhibit 3):

1. Maintain profitability in short term

2. Maintain market share

3. Keep quality standards high

4. Time and complexity sensitive

5. Ensure long term growth

 

Alternative Development and Assessment

1. Maintain Current Strategy - A potential strategy is to maintain there current strategy and focus, and wait for Wal-Mart to make their move. If profits and market share begin to fall then Loblaw's