The grocery industry has a relatively high market commonality; a lot of grocery stores are somewhat related in terms of technologies used, labor force and the products or services offered in the stores. Differentiation with other competitors is key for survival in this highly competitive industry.
Canada’s demographic trend is very unique due to the increasing number of immigrants and its aging population. Ethnics come to Canada mainly from China, South Asia, Middle East, Central and South America, and Caribbean. The increase in immigrants create a demand for the grocery industry to carry a broader line of products that cater to its multicultural customer base. Furthermore, Canada’s aging population creates a whole new market as consumer product choices change. Income distribution has evolved drastically past decades with the increase in duel-income families. A focus on health in recent years, paired with higher discretionary income, has fueled a growing industry of organic and nutrition-infused products. People cook less at home and seek more faster and convenient source of foods. Although 70% of Canadian meals are consumed at home, they are more likely to be delivered, ready-to-eat takeouts, or catered on-site. In addition, savvy consumers are well-informed and demand one-stop shopping to not only purchase food products, but also non-food items such as daily household items. Grocery Industry
Porter’s Five Forces Model of Competition (See Appendix)
The Canadian grocery industry is highly competitive and has high barriers for new entrants. Canadians pay the lowest prices for food in the world. Furthermore, Loblaw, Sobeys, Safeway, Metro, and A&P take up nearly 70% of Canadian grocers’ market share. With so many dominant players in the industry, the grocery store suppliers’ bargaining powers are relatively low, depending on the scale of the stores. Furthermore, the customers’ bargaining powers are very high since there are so many substitutes and competitors to choose from, including restaurants, take-out stores and fast food shops. Thus dissatisfied customer can simply switch to other competitors. Grocery stores have attempted to reduce substitution threats by offering ready-to-eat foods. Smaller grocery stores are unable to compete with these big boxes and are having a difficult time surviving. The grocery market is a slow growth industry and has an intense rivalry in terms of pricing and increasing consumer service. There is a high exit barriers due to the costs involved with the loss of labour, suppliers, and other investments.
Food is more than a necessity for living and it also a reflection of cultures. Changes in people’s lifestyle affects what they eat. Such trends influence grocery stores offerings. A growing number of grocers are desperate to find ways to compete and survive by differentiating themselves from others. New entrants are likely to find the industry less attractive due to the maturity of the market and the high level of competition. Internal Environment: Loblaw Companies Limited
Despite a decreasing number of total grocery stores in Canada, Loblaw is continuing its aggressive growth strategies and is currently Canada’s largest food distributor with sales of $23.1 billion in 2002. Its market share is 32% in Canada and it is among the top 25 in the world. As a leader of the grocery market, Loblaw gives consumers a good place to shop, good price and good time at the store to be the helper of everyday householders.
Distribution (Location) Strategy
Contrary to it competitors who lease their stores, Loblaw owns 63% of its stores, many of which are in prime location. This strategy has enabled Loblaw to successfully increase its corporate stores’ average sales per square foot, while its competitors have experienced a gradual decline in sales per square foot.
Private Label Strategy
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