Loblaw Companies Limited Case Study
Table of Contents
Loblaw Companies is facing the greatest competitive challenge of its recent history with the launch of Wal-Mart into their markets. Having originally entered the market in 1994 through the acquisition of 122 Woolco Stores, Wal-Mart is planning to open their first SuperCenter in Canada imminently. Known for their Every Day Low Price (EDLP) value proposition, exceptionally efficient supply chain, logistics and ERP process execution, marketing aimed at budget-conscious buyers, and product selection, Wal-Mart is a strategic threat to Loblaw. While Wal-Mart is a strategic competitive threat, Loblaw must also stay focused on coordinating their competitive strategy to also stay ahead of dominant grocery competitors including Sobeys, Metrics, A&P, and Canada Safeway. In addition, wholesale clubs, specialty chains, convenience stores and online shopping are additional considerations to keep in mind when defining a strategic response o Wal-Mart. Any competitive response on Loblaw’s part must support and strengthen competitiveness in each of these other channels, or the company risks becoming out of balance from a competitive standpoint. Pricing as a competitive differentiator for Loblaw is not to be taken in isolation; there must also be a concerted approach to look at the company first from an operational performance perspective. In conjunction with this systematic approach to evaluating Loblaw competitiveness at the Operations level, new strategies must be put into place to further strengthen and sustain customer loyalty at each of the retail channel levels as well. The Wal-Mart threat is the most lethal when Loblaw responds only with price as a differentiator. External Analysis
Overall the Canadian retail food industry continues to be relatively flat with a 4.1% revenue growth rate in $66.8B revenues for 2002, with price competition and bundling becoming commonplace throughout the industry. Despite the industry-wide slow growth, there are segments experiencing exceptional growth. Revenues are growing at 20% annually in the specialty chains segment, driven by the influx of immigrants and the high level of demand for organic products. The Canadian retail food industry is at cross-roads in terms of profitability, with the mainstream channels experiencing price competition, which will only be accentuated by Wal-Mart’s entry into the market. Despite these conflicting market dynamics, Loblaw continues to retain the majority of market share for grocery retailers, with 32% as of 2003, shown in the Figure 1, to the left (Loblaw’s Financials, 2004).
Figure 1: Canadian 2004 Retailing Market Shares
(Source: Loblaw Financials, 2004)
The maturing and slower growth of the market, as illustrated by the 4% growth rate, need to underscore the urgency for Loblaw to aggressively contain the more industry-wide problems of rapidly expanding packaging costs and the need for making their supply chain more efficient. This latter weakness of the entire Canadian marketplace is one that Wal-Mart will target with their initial launch into the market. There is also the threat of consolidation throughout the industry, and while Loblaw has capitalized on this with a series of successful acquisitions resulting in the addition of over 200 stores (Loblaw Financials 2004), distributed throughout Canada and the U.S. To this point Loblaw has been successful in capitalizing on consolidation, yet this is a persistent threat. In addition to all these other factors, the continuing increase in the price of oil has continued to drive up the costs of operating all distribution channels and operations. Industry Analysis Using Porter’s Five Forces Model
Using the Five Forces Model (Porter, 2008) as the framework for...
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