MOS 4410A Strategy 006 Raymond Leduc Loblaw Companies Limited By
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MOS 4410A Strategy 006 Raymond Leduc Loblaw Companies Limited By: Nikhil (Justin) Bansal, Zunnan (Leo) Liang, and Xue (Snow) Hua Table of Contents Scope ................................................................................................................................... 1 Industry ............................................................................................................................... 2 Competition......................................................................................................................... 6 Company ............................................................................................................................. 9 SWOT ............................................................................................................................... 15 Competitive Advantage .................................................................................................... 16 Value Chain ...................................................................................................................... 17 Recommendations ............................................................................................................. 18 Exhibits ............................................................................................................................. 20 Bibliography ..................................................................................................................... 25 Scope This report will focus on Loblaw Companies Limited and its strategy pertaining to the Loblaws conventional stores. Loblaw operates under approximately 22 market segment banners but this report will focus on Loblaws Supermarkets in the Great Food division as well as Loblaw’s in-store brands. These in-store brands are at many of Loblaw’s stores regardless of the banner. Also, the report will only discuss the retail segment and not the financial services segment of Loblaw Companies Limited. We will not be discussing the discount strategy which includes the hard discount division such as No Frills. Vision: Loblaw’s vision is to be Canada’s best food, health and home retailer by exceeding customer expectations through innovative products at great prices.1 Mission: Domestic food, health, and home retailer providing quality and affordable products. Objectives for 20132: Exceeding customer expectations and achieving improved customer feedback scores with the right assortment, improved customer in-store experience and competitive prices; Offering customized assortment, compelling displays and delivering competitive value across banners through ongoing development and implementation of strategic category reviews; Capitalizing on its established control brands across food and general merchandise; 1 Loblaw 2012 Annual Report 2 Loblaw 2012 Annual Report 1 Managing costs across the business with a focus on improved shrink, inventory turns, labour and administrative expenses to drive efficient operations and provide customers greater value; Investing to improve standards and in-store experience through renovations and strategically investing in new square footage; Capital expenditures to be approximately $1 billion, unchanged from 2012, with net new retail square footage growth of approximately 1%; and Maintain profit levels similar to those of 20123 Industry Porter’s Five Forces Rivalry Rivalry among existing companies in Canada is high. The existence of several domestic competitors including Loblaw, Sobeys and Metro, make up over half of the market share. International companies including Wal-Mart, Costco and Target also play a major role in this market. With many sizeable players in the Canadian grocery retail industry, each company faces strong competition. Threat of New Entrants The threat of new entrants is low due to the number of resources needed to establish oneself as a retailer. Starting a retailer requires a large amount of capital and existing retailers have an established brand reputation. Bargaining Power of Buyers Individually, the buyers have little bargaining power with grocery retailers due to two 3 http://www.ctvnews.ca/business/loblaw-lowers-profit-projection-for-2013-1.1541419 2 reasons. Firstly, most people do their grocery shopping at the most convenient location to them. They cannot bargain with the store but are obligated to pay for the price set by the store. Little incentive is shown for a bargain given that the price set by store is not too far off with the industry average. Second, each store provides a loyalty program to maintain their customer base. This creates a switching cost for customers who consider changing their grocery shopping location. Ultimately, staying with the same store becomes the most rationale option for most buyers. Bargaining Power of Suppliers The bargaining power of suppliers is low because the food retailer industry is dominated by a few major players. These dominant players usually dictate the terms of the relationship with their supplier and can afford to switch suppliers fairly easily. Threat of Substitutes There is a low threat of substitutes as people need to shop for their basic necessities such as food and water. These supermarkets provide a majority of the products that most households will require. People do have the option of going to restaurants but this creates two issues. Firstly, eating at restaurants daily is expensive and not sustainable for the family. Secondly, more and more consumers are becoming health conscious so fast-food options do not fit well with their healthy lifestyle. Porter’s Five Forces demonstrate that the characteristics of this industry are attractive, especially due to a low threat of new entrants, little bargaining power of both buyers and sellers, and a low threat of substitutes. 3 Driving Forces Demographic: The grocery demand is increasing due to increasing immigration in Canada. According to Statistics Canada, immigration accounts for approximately 60.0% of Canada’s population growth in 2011.4 Also, because of the multicultural customers, it causes the grocery industry to carry a broader line of products. Moreover, the industry puts an emphasis on promotional expenditures to increase customers’ awareness and thus, purchase more volume. Socio-cultural: In recent years people have shown an interest for healthier food options and the demand for organic food is increasing rapidly. Some grocery retailers have established a private label or store brand which can save them supplier costs and help build brand reputation. Economic: With increased economic stability, the income level for people is rising. This factor will lead more people to eat out rather than at home so there are less opportunities for grocery shopping. However, greater income could lead people to purchase more expensive products with higher quality. Global: Some global grocery retailers such as Wal-Mart and Costco hold a large share of the market and their low prices influence consumers’ choices. Key Success Factors Convenience location Demographics indicate that it is preferable for a grocery store to choose a location near a dense population. For example, superstores are usually located in a shopping plaza 4 http://www12.statcan.gc.ca/census-recensement/2011/as-sa/98-310-x/98-310-x2011003_1-eng.cfm 4 with ample parking space creating convenience and attraction for consumers. Localizing products for consumers Retailers need to create and launch products specifically for their consumers. This can involve making changes to the store layout to appeal to certain consumer segments. Furthermore, retailers need to be sensitive to different cultures by customizing their production or food preparation practices to mirror those of their consumers’ backgrounds. Efficient supply chains Retailers need to move inventory rapidly especially when dealing with food. Innovative equipment can be purchased to improve efficiencies along the supply chain. Same Store Sales Expansion with new stores is good but successful companies have a proportion of sales growth from existing stores (open for a year or more). This is significant because new stores can cause the company to incur losses which in turn, hurt future sales growth. Sales per Square Foot Successful companies are efficient with their store space so that they are able to generate as much sales volume as possible out of each square foot of store space. An analysis of the industry today and in the future illustrates that Loblaw is in a sound position. The industry has attractive characteristics and the driving forces largely support Loblaw because its broad product offering includes affordable choices, healthier choices, and ethnic offerings. 5 Competition Wal-Mart The global retail giant Wal-Mart entered into the Canadian market in 1994, causing panic to all Canadian domestic retailers including Loblaw who was leading in market share percentage. By definition, Wal-Mart is not the most direct competition of Loblaw. Wal- Mart operates discount stores that offer a wide variety of goods with very competitive prices while Loblaw offers higher quality goods with relatively less competiveness on pricing. However, Wal-Mart’s competitive pricing has a strong ability to alter some consumers’ behavior because many customers see Wal-Mart as a very tempting substitute. As a result, it becomes very hard for Loblaw to maintain customer loyalty while fighting a price war with Wal-Mart. As one of the largest competitors in the industry, Wal-Mart has equipped itself with