Loblaw Companies Limited Case Study
Table of Contents
External Analysis 4
Internal Analysis 8
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 ...view middle of the document...
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 evaluating the Canadian retail grocery industry in general and Loblaw’s role in it specifically, it’s clear that systemic change is required throughout the entire company. This analysis as of the industry and Loblaw also illustrate how critical operational responses, not pricing or marketing alone, are required to sustain its existing growth rate and achieve higher growth over time. Each of the specific aspects of Porter’s Model is next analyzed and insights are used for defining alternatives and recommendations for the strategic direction of Loblaw.
Threat of Substitute Products and Retail Outlets
Given the relatively high level of capitalization required to move into the Canadian retail grocery market and the Internal Rate of Return (IRR) also required, these two factors combined create a formidable barrier to entry for competitors. The exceptions are the well-capitalized global...