Loblaws Case Study

Inc.Loblaws companies limited Loblaw Company Limited is currently Canadian’s market leader in the grocery sector including holding the 24th spot of the world’s top grocery retailer. While Loblaw seems to be doing very well due to the fact that they have a big portion of the market share, but it may not be for long when Wal-Mart becomes one its major competitors. Wal-Mart has decided to expand its business by entering the grocery sector in the Canadian market.

Loblaw’s current issue is the affect that the entrance of Wal-Mart in the grocery sector will have on their current position and if they can remain in business with their presence.

Loblaw needs to decide what their next move will be in order to stay competitive with its newest competitor, who seems to dominate in most of the sectors it partakes in. Recommended Decision It is recommended that Loblaw continues what they are currently doing and in the process improving their services.

They need to focus on their current strengths and work on fixing its weaknesses. Decision Options In order to remain competitive in a market segment that Wal-Mart is entering into, Loblaw should do at least one of these suggestions: * Improve its distribution system, Compete with Wal-Mart by following some of the same strategies and adding non-food items to the store, * Add new services such has online grocery shopping and self-serve check-outs, or * Continue with what they are currently doing and improving while in the process Decision Criteria The reasoning behind my decision of Loblaw doing what they are currently doing and improving at the same time, is the fact that they are doing very well and by changing it may affect their current financial position.

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It has been proven that stores that try to compete with Wal-Mart have suffered, such has K-Mart.

Other companies, like Best-Buy and Staples, have been able to stay competitive and increase their net income without having to bring in new departments to their stores. It is possible for Loblaw to continue what they are currently doing but it will require them to make some improvements. Proof of Recommended Option Although the entrance of Wal-Mart in the grocery sector is new in Canada it isn’t new to our neighbours to the South, the United States. Although they have took a big majority of the market and is the number one top food retailer it has not prevented other grocery retailers to compete with them.

Kroger’s, Supervalu, and Safeway are just some of the few grocery retailers present in the states. These retailers have been able to maintain and increase their sales every year since the presence of Wal-Mart. Some factors that have helped in this is that Wal-Mart stores are mostly situated in the farthest part of town because of their needs of big pieces of property, which made these stores more favourable due to the fact that they were situated in more favourable areas, and the demand for food increases on an yearly basis, which there was more room for competitors.

None of these previously mentioned stores have added new departments to their stores which prove that there is no need to compete against Wal-Mart. It would be beneficial to Loblaw to continue what it is currently doing due to the fact that it has many strengths, as seen in Exhibit 1, and that is what has made them the number one grocery retailer in Canada. Control Label Products Currently Loblaw has its own private label product under the name of President Choice.

As stated in the case, Loblaw has been able to persuade its consumers towards its control labelled products instead of the well known brand name products because of the lower prices. Once you start liking a certain product, especially when it’s at lower price, it’s a lot easier to pry yourself from trying other similar products, due to the fact that you already know you love the product and you don’t want wasting money on a product that you aren’t sure if you’re going to like.

Although Wal-Mart has its own control label product, it may be too late for them to get the current PC product users for the simple fact that the cost of these products are low in cost, its already familiar to consumer and the use of customer loyalty programs. With producing their own products, they are able to avoid buying marked-up goods which will reduce their costs, it can control the amount of units produced, and the make their own marketing strategies that the can use to increase sales. Having control label products can reduce cost, providing consumers with lower priced items while keeping gross margin he same or higher, and producing customer loyalty which will keep consumers from shopping elsewhere due to the love of the product offered. Wide Product Range Loblaw has a range of products including from fruit and vegetables, fresh meat, bakeries, wide variety of shelf items, organic foods, ready-made meals, multi-cultural food items, a pharmacy department, and photo labs. Although Wal-Mart has a food department, a pharmacy, and photo labs, only its Supercentre have meat, vegetables and fruits, and bakeries on site.

By not offering full services of what is present in a regular grocery store, Wal-Mart may lose possible consumers, which will be a benefit for Loblaw. Leading presence Loblaw is currently the leader in the market share and it can continue to be as long has it stays competitive to Wal-Mart. In the US, Kroger remained the number one grocery retailer in the States until 2002. Wal-Mart’s grocery department was first introduced in the States in 1988 which means that there is some time for Loblaw to continue its competitive edge against Wal-Mart before they dominate in the Canadian market.

Customer Loyalty Program This factor will probably be the most important factor that will help Loblaw maintains its current market share. Currently Wal-Mart doesn’t have a customer loyalty program for its customers. The customer loyalty program was launched with President’s Choice Financial, where customers receive points when they shop at any Loblaw chain store. With the collected points, customers can exchange them for free groceries. This persuades customers to stay at Loblaw because they receive something in return for shopping there.

Location of Stores Wal-Mart stores are mainly situated in the far-end of towns due to the fact that they need the wide space in order to be able to offer all of its services. Due to the less needed space, Loblaw stores are situated in preferable spots. When in a rush people tend to go to the nearest location to purchase what they need, and when it comes to buying food items, most cities have more than one option and they will pick the one that is nearest to them.

Although Wal-Mart may have some favourable prices over some at Loblaw, the price of gas and time is not worth the small amount of savings. The disadvantage of only focusing with continuing what they are currently doing is that they may lose the opportunity to grow. By not choosing any of the other options, they can possibly be losing on increase number of sales, getting new consumers into the store, being more efficient and in the process reducing cost. If Loblaw continues to keep working on maintaining and keeping its strengths, it will be able to compete with Wal-Mart.

It may lose its spot as the number one Canadian Grocery Retailer but it does not mean that it will be seeing decreases in its net income due to the fact that the annual demand keeps increasing, which means there is room for both competitors. Also by not spending their money on the other options, it will be able to save for the future which is one of the company’s strategies that seems to be working. Although they are not fixing their current weaknesses such has improving technology, which will be discussed below under improving its distribution system, they are currently working effectively without the use of technology.

Having unionized workers can increase cost and create some conflicts in the organization but it is better than having higher employee turnover and they are currently dealing with the issues. Critique of Options Loblaw has other option other than sticking with what they are currently doing. In the next paragraphs you will see the advantages and disadvantage of the other options they have: Improving its distribution system Currently Loblaw is behind on their technology.

Many other similar stores have implemented Radio Frequency Identification technology in their organization, which Loblaw has not. The advantages of improving their distribution system, is that they can have better control on their inventory and it may improve their communication with suppliers and warehousing employees. The implementation of technology usually helps reduce cost in future years. The disadvantage of improving their distribution system is that it is costly at the beginning and this money could be used in other aspect of the organization.

Technology is not always reliable; there is always a possibility of a break-down, when this happens there could be an extra cost, some information may get lost, and they may not being able to function as effectively. Although it is something that Loblaw should check into doing in order to be more efficient, it shouldn’t be one of its priorities considering that they have been able to have only 34 warehouses for delivering to 8766 stores, which gives a ratio of 257:1 while Wal-Mart at the most is 100:1 and they currently using the Radio Frequency Identification system.

So although technology helps the efficiency of certain organization, it seems that this company is doing pretty well without it and the implementing new technology may cause more harm than good. Competing with Wal-Mart The advantages of competing with Wal-Mart are that Loblaw would be offering more products to its consumers, there would be another source of income coming into the company that they never had before such has clothing, electronics, etc and it can attract new customers. The disadvantage of competing with Wal-Mart is that they have been known has having the lowest price in any department stores.

Kmart tried to compete with them and ended up having to declare bankruptcy. Bringing in new product that Wal-Mart already has will cause some major challenges for Loblaw, considering Wal-Mart have really low prices on some of their items due to the fact that they have an active power over their suppliers which they receive their products at a low price, in which in return they pass-on the savings to their customers, which Loblaw will not be able to do due to the fact that they don’t have a relationship with these suppliers.

There will also be an increase cost for them, due to the fact they will have to expand current location in order to be able to carry their new items, in which also will require bigger warehousing units in order to have stoke ready for demands. They will also have to focus on their new departments which may lead to neglect in their grocery department.

It is not recommended for Loblaw to compete with Wal-Mart because they may need to move in less favourable areas due to the fact that they will need an increase in space for the new merchandise, they would need to compete with the low price of departmental products that Wal-Mart currently has, and the fact that their main product may suffer due to neglect. Adding New Services Self-service check-out reduces time due to the fact that one employee can run more than one checkout which increases the number of customer being served rather than having one cashier serving one customer at a time.

Having this service reduces the number of employees which will help save in the long-run. Some customers like having the privacy aspect of it because they do not like having other people knowing what they are buying. The disadvantage that Loblaw would have to face would be the union. As stated in the SWOT analysis, one of the weaknesses of Loblaw is that it is a unionized organization; the union is there to keep jobs, so it may face some challenges. The check-out runs on a weighting scale, if there is a mistake in the weighing, there can be potential sale lost to the company due to robbery.

The initial cost of the new machine may prevent the company from pursuing other projects. Another service that may be beneficial to them is the implementation of online grocery shopping. The advantage of this service is that customers are able to place their orders online and get their groceries delivered to their home which gives great convenience. The disadvantage is that Loblaw will have an increase in cost such has designing a website, the cost of shipping, a lot of people might not feel comfortable with using this new technology, and program malfunction may put a temporarily shut-down on the service.

Action Plan In order to continue what it is currently doing and improving at the same time, it should follow its current strategies which are mostly present in the strengths of the company. So in order to continue and improve its: Control Label Products: * Come out with new innovating control label products that are different from competitors * Analyze competitors control label products * Hiring new people in the R&D sector that show some potential for innovation * Increase awareness of the product * Making coupons * Keeping low prices Offering samples in store at peak time Wide range of products * Offering specialty food items that are not available in other local stores * Keeping in stock ethnic food items * Asking customer to identify items they believe should be offered in the store * Expanding their ready-to-eat meals * Increasing kitchen size in order to have a bigger selection of readymade foods * Offering both control label brands and brand name products Customer Loyalty Program * Offering extra points for purchasing PC brand items * Offering the loyalty program to all consumers Currently the program is only available to PC financial customers, other customers can sign-up at the customer service desk and will receive a card in the mail that will look like a debit card and will be used to collect point and be redeemable to purchase groceries. PC point users who aren’t a PC financial customer will be required to collect more points. Location of store * A major advantage that Loblaw has is that it own 63% of its stores, it should continue investing in buying good located properties in order to maintain its current advantage.

Loblaw should be in constant contact with local realtors to find potential new locations with high traffic and big space availability. * In an article, the author, B. Martens, stated that a Wal-Mart take over can be prevented, if the current companies could make themselves known by increasing the number of stores in that city, so continuous store openings will help on defeating its new major competitor. Analysis All of the elements in the action plan come together to form, the Porter’s Five Forces, as presented in Exhibit 2.

By being able to have control label products, it is able to have power over its suppliers by having other products of similarity which prevents suppliers from overpricing their products. Due to the fact that Loblaw and its competitors have a strong presence in the grocery sector, it can prevent smaller companies from entering due to the fact that they have some customer loyalty, lower price items from having private label products, and an existing relationship with their suppliers. Although consumers don’t have power over the set prices put nto place by Loblaw, they can make Loblaw charge reasonable prices by threatening to shop elsewhere. By continuous improvement and finding and making innovative products, Loblaw can prevent competitors from introducing their similar products to their current consumers. Keeping prices low of their current control label product will prevent its consumers looking elsewhere for substitute items. If Loblaw continues what it’s doing and takes advantage of the increase demand for the grocery market it will continue to succeed even if it’s at a lower market rate.